"Gold is the money of kings, silver is the money
of gentlemen, barter is the money of peasants, but debt
is the money of slaves." ~ Norm Franz (from "Money & Wealth
in the New Millenium")

"There are two ways to conquer and enslave a nation.
One is by the sword, the other by debt." ~ John
Adams (1826)

"I thought the USGovt debt downgrade was irrelevant.
It did not reflect the strength of the USEconomy and the US political system." ~ Hillary Clinton
(Secy of State, narco baroness)

"We are going to be gifted with a Health Care plan
we are forced to purchase, and fined if we do not, which
purportedly covers at least ten million more people, without
adding a single new doctor, but provides for 16,000 new
IRS agents, written by a committee whose chairman says
he does not understand it, passed by a Congress that did
not read it but exempted themselves from it, and signed
by a President who smokes, with funding administered by
a Treasury chief who did not pay his taxes, for which we
will be taxed for four years before any benefits take effect,
by a government which has already bankrupted Social Security & Medicare,
all to be overseen by a Surgeon General who is obese, and
financed by a country that is broke!! What the hell could
possibly go wrong?" ~ Donald Trump

MONETARY SHRAPNEL

◄$$$ MUSINGS. DISTRACTION
LABELS AND CONCEPTS ARE BEING TOSSED AROUND BY THE PRESS.
BEWARE OF SYSTEMIC FAILURE, ECONOMIC COLLAPSE, AND FINANCIAL
MARKET RUIN IN FRONT OF YOUR EYES. THE EUPHEMISMS ARE TELLING.
$$$

A great deception is being perpetrated. It is over important
keywords used. The reality is breakdown, disintegration,
insolvency, bankruptcy, the stuff of systemic failure, all
of which terms are actively avoided by the financial press
networks. Notice the emphasis of words like volatility,
uncertainty, trust, confidence, anxiety, each bandied about
with a tone of alarm. These words are euphemisms that
attempt to soften a growing crisis with panic. The financial
crisis has turned chronic and embedded. The heightened supposed
liquidity solutions have brought nothing positive, as the
need for asset protection is extreme. The populace must contend
with the lack of spending power, job insecurity, and higher
costs, the telltale downdrafts of powerful recession. The
media mentions how the USEconomy is suffering mightily from falling credit quality,
multiple years of housing distress, a stalled
recovery (never occurred in reality). The monetary system
has been weighed down powerfully by the ongoing global financial
crisis, chronic budget battles, urgent austerity measures,
and political battles in the open amidst stalemate. What
seems not mentioned ever is the need for the United
States to bring back home its industrial
base, the one sent to Asia over a 30-year
period. The ravaging effects of globalization are seen across
the Western world.

Americans are slowly awakening to the systemic failure,
the broken USEconomy, the absent potential for recovery, the political
apparatus incapable of responding, the compromised banking
system tapping the USGovt largesse, and the widespread
neglect of the Main Street popular concerns. The panic
stage has begun, as the populace senses a renewed backward
slide with nothing fixed and almost all policy measures
yielding futility. The language of the news media has changed,
a disguised doom built in the keywords. A great unease
has entered the US citizenry consciousness. The global recession
will make that discomfort much worse. The government policy
response, more of the same except bigger futile useless
bumbling initiatives, will reinforce the public perception
of the systemic failure in progress. All policy response
has aggravated the problems. American citizens will face
a quantum leap in shock when the USGovt pursues and captures
pension funds and bank certificates. The USTreasury Bond
asset bubble must be nourished. All channels will be exhausted.
Refer to 401k, IRA, and Keough funds, all of which will eventually be forced into USTBonds or else lose their tax exempt status. Refer to bank
certificates of deposit, all of which will eventually be
forced into USTBonds or else lose their depositor guarantees.

◄$$$ A RENEWED CRISIS IS AT THE DOORSTEP, 2008 AGAIN
BUT WORSE. TWO KEY DIFFERENCES STICK OUT. THREE YEARS OF
0% ACCOMPLISHED NOTHING. INTEREST RATES CANNOT BE REDUCED
FURTHER. AS USTBONDS GAINED IN PRINCIPAL VALUE DURING THE
DEAD MAN RALLY, SO DID GOLD RISE SUBSTANTIALLY IN PRICE.
THESE ARE NEMESIS VEHICLES. THEREFORE ALL SAFE HAVENS ARE
BEING PURSUED LIKE LIFEBOATS AT A TIME WHEN MOST WEAPONS
HAVE BEEN EXHAUSTED. THE USFED HAS DECLARED SURRENDER, YET
FEW SEE IT. BIG CHANGES HAVE ARRIVED IN THE FORM OF BIG BANK
INSOLVENCY AGAIN, IMMINENT RECESSION, SOVEREIGN DEBT CONTAGION,
FINANCIAL MARKET PANIC, HOUSING MARKET RUIN, FISCAL BUDGET
DEFICITS OUT OF CONTROL, RAIDS FOR GOLD IN FOREIGN WARS,
AND COMPETING GOLD EXCHANGES. NOTHING IS THE SAME EXCEPT
THE IMMINENT BREAKDOWN COMPARED TO 2008. $$$

The financial press reports that the current financial situation,
a chronic crisis that has festered for three full years,
is approaching another breakdown event. The promoted distorted
theme is that this is 2008 all over again. The key differences
fill volumes. The biggest differences in reality are headline
issues that paint a totally distinctively different world. Zero
Hedge points out that substantial upward
moves in the long-term USTreasurys have
provided hefty 8% and 16% gains. The USB 30-year bond principal
has risen from the 120 to 140 level. The UST 10-year bond
principal has risen from the 120 to 130 level. These are
strong gains, but half the size of the gigantic 40% gains
in the USB in the last two months of 2008 following the Lehman
bankruptcy. It rose then from 100 to 143. Here in year 2011,
the well-established near 0% official interest rates are
fixtures, even promised in a ZIRP through mid-2013 by the
hapless dishonored USFed that lacks
any tools or ammunition, despite what they claim. The seizure
in capital market liquidity, especially in Europe, may be the most obvious parallel between the two time periods.
The inter-bank lending, money markets, and wholesale channels
are under deep distress.

Another headline difference is that Gold and USTreasurys are rising together,
something almost never to occur. The value of longer-term
30-year USTreasurys has
risen by 14.75% since the beginning of July. Over the same
period, the $US denominated value of Gold has risen from
$1482 to the $1850 neighborhood, a similar 25% rise. All
this has happened while the US$ DX index has been relatively
quiet, even flat until the last two week on a 4% rise from
74 to 77. Never forget that USTreasury securities
and Gold are bitter nemesis entities in the financial system. USTreasury debt is the foundation of the global monetary
system, an upside-down design destined to ruin. Gold is the
polar opposite of the global monetary system, the venerable
vote of No Confidence in the fiat paper money charade with
the illusion of central bank monopoly control. The monetary
policy stuck at 0% and Gold running in correlated fashion
with USTreasurysare missed items, seriously
overlooked stories. One can say that Gold in terms of every
major paper currency has gone ballistic. See the Zero Hedge
article (CLICK HERE).

My analytic take is similar but with much more to fill in
the contrasted background that in no way resembles 2008.
The biggest points of differences in my view are a 0%
official interest rate stuck as policy that has accomplished
nothing except to continue to stoke the gold cauldron. The
sovereign debt crisis had not even begun in 2008, now
in full bloom and in contagious mode. The higher entire
cost structure has come from a few rounds of debt monetization,
euphemistically called Quantitative Easing. The big Western
banks have not recapitalized, despite what is reported,
almost every bank having passed on opportunities to sell
stock on the secondary market at higher prices. That door
is closed, after huge stock price declines. Lastly, the
$4.7 trillion in central bank new money has been wasted
without any tangible benefit including to the bank sector.
They have dumped toxic bonds on the USFed and
Euro Central Bank, and assured themselves of grand bonuses
in reward for presiding over fraud and ruin that has invited
a flurry of bond investor lawsuits. So with 0% stuck, sovereign
bond turned viral, higher costs in place, and mountains of
wasted money, nothing looks similar in the foremost headline
factors. As in nothing!!

The fiscal and monetary fronts seem in desperation mode,
as policy reacts like spastic twitches. The USGovt debt limit
has been breached again and again. Three years of 0% rates,
a skein of QE initiatives for over a full year has gained
and secured nothing. A ripe $4.7 trillion in rescues, bailouts,
stimulus, all failed to set banks in a viable position. The USFed openly admitting to have no more available tools, a
spent arsenal. Central banks have unceremoniously
joined the Global QE, showing desperation (see Swiss, Japanese).
Open disputes and revolt between Euro Central Bank and German Bundesbank are
being fought. The big Western banks are teetering on failure,
their high debt insurance prices telling the story, just
like Lehman and Bear Stearns did three years ago. Consolidation
of Wall Street banks has turned sour, with poster boy being
the doomed Bank of America. The insolvent big US bank stumbles
around, as many of the banks respond to lawsuits. Bank of
America seeks cash infusions to stave off bank failure, finding
it in misguided Berkshire Hathaway investments and asset
sales. The Royal Bank of Scotland serves
as the London poster
boy of bank failure. The Bank of New York Mellon charges
fees for bank deposits. The Too Big to Fail policy
toward big US banks has begun
to become a challenged mantra. The Western Economy is
not responding to stimulus, entering recession again. Budget
austerity has arrived in force, with attempts to reduce spending.
All indicators look horrible in an undeniable billboard,
urging government action. But they are clueless except for
more Panhandle Doctrine aid to consumers and Parasite Doctrine
aid to banks. None of these fiscal, monetary, and banking
factors is the same as 2008.

The sovereign debt crisis is all new and extremely foreboding
in danger, a new development. The advent of sovereign
bond breakdowns turned viral after Dubai in November 2009. The Southern Europe sovereign
debt crisis has in the past 18 months spread from Greece to Italy and Spain.
The harsh spotlight of crisis has begun to shine on France, a veritable PIGS lookalike. Distrust
among banks is high, seen in absence of inter-bank lending.
The Credit Default Swap contracts are openly cited, no
longer a hidden domain. The financial markets are in
turmoil, seen across many individual markets. My spring
2011 forecast of USEconomic decline and US Stock market decline exploited
by aUSTBond rally
to aid the funding of USTreasurys has
occurred on schedule. The USTreasury long-term bond yields at 2%, not 4% like in 2008.
Widespread stock market declines usher in panic, a new
phase.

The housing market has become a monster with boils and
excrement in the rear flank, not showing improvement
but rather exposing a deep cancer and severe rot. The housing
decline has turned chronic, causing despair among the people
who cannot draw money from their equity ATMs. The monstrous
climb in bank owned homes taken in foreclosure, the Shadow
Inventory, is entirely new, a grand boil whose pus will
continue to drip on the USEconomy for
another two years. The housing market cannot clear and
find a bottom in home prices, an impossibility.
The MERS title database has been discredited in court,
shown repeatedly in the last year to have zero legal standing. The hidden rise in
strategic home mortgage defaults is also new, as people
demand proof of title and win court challenges.
The USGovt has actively avoided meaningful home loan balance
reductions, since so costly to the banks that control the
government policy levers. In a motion to display a schism,
the USGovt has filed lawsuit against 17 big US banks
for bond fraud restitution. The housing decline reveals
an aggravated feature, as does renewed bank system insolvency.

The gigantic USGovt fiscal deficits off the charts have
become the norm, as the USGovt political gridlock and
stalemate prevent progress. In 2008 came the advent of
over-$1 trillion deficits. Forecasted precisely by the
Jackass, the USGovt deficits have zoomed to $1.5 trillion
and stayed there. US politicians are openly
mocked for their empty battle cries for job creation, lacking
substance. Their grandstanding is seen as perverted displays
that demonstrate a shocking ignorance of capitalism. They
still do not pursue the return of industry dispatched from America to Asia.
Then Obama's biggest accomplishment is the Health Care
plan, a cripple to small business. Expect a $2 trillion
USGovt deficit next fiscal year, certain to shock the entire
world financial system and expose the USTreasury Bond
market as an asset bubble and PonziScheme that
has run its course. The fiscal woes are all new and worse.

The entire North Africa & Middle East regions are
in turmoil, a great threat to stability but also a
convenient opportunity for pilferage. A hefty $90 billion
has been frozen (stolen) from Libyan Funds. A hefty $60
billion has been sequestered from Egyptian Funds. The
Gold market has changed radically, as battles and accusations
and depletions occur in more open view. A new Gold exchange
has opened for trade in competition in Asia and Singapore. The COMEX is being drained of its
Gold & Silver inventory. Abusive diversion of GLD & SLV
metal holdings during backdoor removal of inventory has
occurred, complete with accusations and evidence offered
in public stages. The Arab region in flames is all new.
THE ONLY SIMILARITY TO 2008 IS A BADLY BROKEN CONDITION
AGAIN BUT THIS TIME WITH NO AVAILABLE TOOLS
!! See the Jackass public article "False
Comparison to 2008" on the GoldSeek website
(CLICK HERE).

◄$$$ THE OBAMA $447 BILLION STIMULUS PLAN IS LOADED
WITH CALLS FOR URGENCY, ACTION IN NATIONAL INTEREST, BUT
IT ALSO CONTAINS THE USUAL DECEPTION. IT IS NOT PAID FOR
BY SPENDING CUTS AS HE PROMISED, BUT RATHER BY TAX HIKES
WHICH WILL ASSURE OBSTRUCTION IN ITS PASSAGE. $$$

President Obama outlined a $447B jobs plan in his speech
to the USCongress that made great
theater. Expectations for the total package had been in the
$300 billion range, so larger on arrival. The package was
presented as new, when it was more a table pounding repeat
of the same, but with a few compromises built into it. Notice
the tilt to smaller businesses in the payroll tax cut. Notice
the puny amount dispensed to states, when need 20x as
much. NOTICE NOTHING ON HOME LOAN BALANCE REDUCTION AGAIN.
The plan calls for:

$240B: cutting the employee payroll tax in half for 2012,
cutting the employer payroll tax in half for 2012 on only the
first $5 million of payroll, and eliminating the tax for
new job hires

$62B: extending unemployment insurance benefits for another
year

$50B: immediate investments in roads, rails, and bridges

$35B: for state & local governments to prevent teacher & police
layoffs

$30B: to modernize schools

$10B: for a national infrastructure bank to leverage
private & public capital that invest in infrastructure
projects

Obama claimed that the cost of the entire plan will be
offset by an increase in the spending cuts to be proposed
as part of the official upcoming long-term deficit reduction
proposal. The reality is quite different, better described
as a lie. The Second Stimulus Plan runs at a cost of
$312k per job created or saved, a huge amount for meager
response. The flakey economic impact is an estimated $300
billion increase to GDP as the miracle yields 1.9 million
new jobs, and saves a big heap of unquantifiable jobs to
boot. The President designed the payment system to happen
over 10 years. If at $475 billion in direct expenses, even
at a mere 2.5% interest paid, another $120 billion is added
in finance costs. The actual payment for the entire stimulus
package is hardly what the leader promised. Grotesque
5:1 payback in Keynesian inefficiency American style strikes
again. Footing the bill is from tax hikes elsewhere,
exactly what opposition political camps object to, enough
to obstruct its passage. Jack Lew from the Office of Mgmt & Budget
Director gave some information that was aptly missing from
the original dramatic presentation with glaring ostentation.
The list of tax hikes to pay for the stimulus plan is diverse,
which make difficult the passage. Spending cuts are nowhere
to be seen, as promised.

Limit on itemized deductions for incomes over $200k

Taxing carried interest as ordinary income

Removing Oil & Gas industry tax breaks

Making depreciation for corporate jets the same as commercial
jets.

So Obama lied, since tax hikes support the entire stimulus
plan, which is not at all paid by spending cuts. Like with
George W Bush, the future forecasts are cited as grand benefits,
whereas the reality is economic ruin and not brisk growth.
Remember Bush actually forecasted massive budget surpluses
by year 2010, one of the biggest forecast travesties in USGovt
history. He made the lunatic forecast at the time of his
staggering tax cuts to the wealthy, who were
expected to increase business investment in the USEconomy.
They did so in foreign lands, principally China, and pocketed big executive bonuses. See
the Forbes article (CLICK HERE),
the Bloomberg article (CLICK HERE),
the Zero Hedge article (CLICK HERE).

◄$$$ CHINA REGARDS GOLD AS THE
WEAPON TO UNSEAT THE ANGLOS FROM POWER AND TO NEUTRALIZE
THEIR INFLUENCE. CHINA OWNS
OVER $3 TRILLION IN RESERVES. INCREASINGLY, THE WORLD WILL
FOLLOW THE CHINESE LEAD. ALL B.R.I.C. NATIONS DO. $$$

The backdrop is a Gold price stable above the Jim Sinclair
stated critical $1764 mark, sovereign debt crumbling across
Europe, factional fighting among European bankers, the USTreasury Bonds sucking up capital at the expense of the
business sector, big Western banks in dire straits of insolvency,
and panic hitting the stock markets. Another WikiLeaks story
has come out with potential explosive impact on the price
of Gold, which has been flirting with the $1900 level. The WikiLeaks release of US State Dept internal cables has revealed the
Chinese plan to undermine the USDollar by
means of the gold mechanism. The embassy cable has a
label (09BEIJING1134) which exposes both the clandestine
operations at the USFed and USDept Treasury. According
to their National Foreign Exchanges Administration, China's gold reserves have recently increased,
but the majority have been located
in the United States and
European countries. The USGovt has a deep vested interest
to see other countries not turn to Gold reserves in lieu
of the USDollar or Euro. The suppression
of Gold is essential for maintaining the USDollar role as global reserve currency. Many nations, especially
in Asia and South America, look to China as model for emulation. Large gold reserves
are beneficial in promoting the internationalization of the
Chinese Yuan currency, making it fully convertible.

Tyler Durden, bruised but ever bold, believes that Gold
at double its current price will also be cheap. He wrote, "The
leaked [State Dept] cable explains why Gold is, to China at least, nothing but
the opportunity cost of destroying the USDollar's reserve
status. Putting that into dollar terms is, therefore,
impractical at best and illogical at worst. We have a suspicion
that the following cable from the US embassy in China is
about to go not viral but very much global, and prompt all
those mutual fund managers who are on the golden sidelines
to dip a toe in the 24-karat pool." Strong words,
but expect the information to go viral outside the United
States and England,
which have well controlled press network systems fully subservient
to the power elite and security agencies. See the Before
It's News article (CLICK HERE).

◄$$$ GENERAL MOTORS HAS A PENSION FUND SHORTFALL GREATER
THAN ITS MARKET CAP. ITS EXECUTIVES MUST SELL STOCK TO FUND
THE SHORTFALL, WHICH WILL BE DILUTIVE. LIKE MANY PENSION
FUNDS, THEY CALCULATE FUTURE RETURNS FAR ABOVE THE PREVAILING
ROCK BOTTOM BOND YIELDS. SO THEIR CONDITION IS WORSE THAN
STATED. $$$

The quintessential strength of an economy lies in its transportation
and steel industries. The USEconomy has neither, both outsourced and gutted. The
General Motors pension fund shortfall could be bigger than
its entire corporate market capitalization value. Bloomberg
has disclosed that General Motors expects to
quantify a $35 billion pension shortfall. The condition
will surely delay share buyback or dividend payments. The
shortfall trumps the GM marketcap,
and makes a mockery of the supposed success nationalization
full loop. The marketcap fell to $33.1 billion last month, but has recovered
to $34.7 billion last week. The carmaker has emerged from
bankruptcy, reported six consecutive quarterly profits, and
built up its cash holdings. Rumors float that the company
might buy back shares from the USDept Treasury. Disclosure of the pension shortfall will
interrupt any return to normalcy. Instead look for pension
funding at a great cost, like a dilutive secondary stock
offering. The shortfall has grown. It was reported at $22.2
billion at the end of 2010. The figures did not include a
$2.2 billion stock contribution made to the pension fund
in January. By contractual obligations, GM is not required
to make contributions to its US pension plans until 2015.
Ambitious goals on its funding have been publicly proclaimed,
but they are impractical and highly unlikely. The story is
worse than reported. Like many corporate pension funds, the
calculations on future returns are totally bogus. Reality
dictates using lower asset returns. Like fools, GM used
a discount rate of 4.96% last year to calculate current value
for future payments, which is clearly absurd but looks
good on paper. See the Business Insider article (CLICK HERE).

USTREASURY BOND TRAVESTY

◄$$$ BERNANKE LAID AN EGG AT JACKSON
HOLE. ON A GLOBAL STAGE, HE ESSENTIALLY ADMITTED THE USFED
HAS NO EFFECTIVE WORKING TOOLS REMAINING. THEY HAVE EXHAUSTED
THEIR TOOLBAG, MADE THE SITUATION WORSE, AND NOW HOPE FOR
THE BEST LIKE ALCOHOLIC PYROMANIACS. HE DID SIGNIFICANT PUBLIC
HAND WAVING AND HAND WRINGING. IF HE IS AWARE OF THE DIRE
RISK OF SYTEMIC BREAKDOWN, HE DID NOT SHOW IT. HIS ARROGANCE
SURELY LEADS HIM TO BELIEVE OMNIPOTENCE. MUCH REVERENCE IS
STILL SHOWN TO THE USFED & CHAIRMAN DESPITE THEIR FAR-REACHING
FAILURE. $$$

Never in modern history has a central bank from a major
industrialized nation admitted helplessness and futility
in monetary policy capability until late August when USFed Chairman Bernanke did so in full view on stage. He
might as well have admitted that the fiat currency system
and its attendant central bank franchise have been a gross
failure. Systemic failure is next, a process well along.
In a pathetic display that lacked any details whatsoever, Bernanke
delivered a grand bluff, claiming at the Jackson
Hole Meeting of bankers and economists that the USFed still
has tools to stimulate the USEconomy.
He has leggo and tinkertoy tools,
some Beanie Babies, bailing wire and duct tape, nothing more,
maybe some strong language. To think that the USFed can
halt interest paid on Excess Reserves is laughable, since
the central bank needs the assets to conceal its grotesque
insolvency. The ZIRP (0% rate) and QE (debt monetization)
have been tried, with no economic recovery at all and a cost
increase to aggravate the situation.

Before an admiring crowd, shamelessly Bernanke said "In
addition to refining our forward guidance, the Federal
Reserve has a range of tools that could be used to provide
additional monetary stimulus. Although important problems
certainly exist, the growth fundamentals of the United
States do not appear to have been
permanently altered by the shocks of the past four years.
It may take some time, but we can reasonably expect
to see a return to growth rates and employment levels consistent
with those underlying fundamentals. The Federal Reserve
will certainly do all that it can to help restore high
rates of growth and employment in a context of price stability.
[He called for the USCongress to adopt a] credible plan for reducing future
deficits over the longer term. The extraordinarily high
level of long-term unemployment adds urgency to the need
to boost job growth. Most of the economic policies that
support robust economic growth in the long run are outside
the province of the central bank. Financial stress
has been and continues to be a significant drag on growth.
Given the most likely scenarios for resource utilization
and inflation in the medium term, the target for the federal
funds rate would be held at its current low levels for
at least two more years."

The denial by Bernanke was dressed up within a fantasy perspective
that fails to detect a recession, again. He cannot address
the bank insolvency either. Never has the USFed neglected
from offering details on tools to use. What a bluff!! He
essentially raised a white flag of defeat and punted to the USCongress,
a den of polarized compromised nitwits and snakes. A second
day has been added to the next FOMC meeting in late September
to allow a fuller discussion of the economy and potential
response. He fell short of promising a QE3, acting coy. My
belief is that debt monetization that is QE has never stopped,
and has actually accelerated, with more global participation
by other almost equally desperate central bankers.

In a grand concession, and veiled billboard of defeat, Bernanke
pledged for the first time to keep its benchmark interest
rate at a record low at least through mid-2013. No central
banker in history has ever made such a promise. He put blame
on the housing market as interrupting the natural recovery
process, without realizing that the fostered dependence upon
home equity withdrawals and mortgage bond trading was the
twin stake through the USEconomy's heart
that the USFed endorsed. He called
it a former significant driver of growth, without acknowledging
a deadly dependence that has resulted in systemic failure. A
housing and mortgage bubble cannot substitute for industry,
even if risk is offloaded in a shadowy system with full praise
and blessing. He made general brush stroke comments about
the European sovereign debt crisis, the volatility of financial
markets, and the frustrating developments related to the
USGovt fiscal situation. This chairman is as much an embarrassment
to economists as he is a willing harlot servant to the bankers.
The nation awaits his helicopter drops, but so far only gigantic
shipments have come to the loyal big banks, via dump trucks
in the US and
shipping containers overseas. See the Yahoo Finance article
(CLICK HERE).

◄$$$ INTEREST RATES HAVE PUSHED LOW IN THE UNITED
STATES. THE NEXT STEP FOR THE USFED IS BECOMING CLEAR, THE
TWIST. LOWER LONG-TERM RATES WILL ACCOMPLISH NOTHING. USFED
POLICY WILL DO NOTHING TO FOSTER A REBOUND IN THE USECONOMY.
THEY HAVE OTHER MOTIVES BASED UPON DESPERATION. STRONG POLICY
TOOLS ARE EXHAUSTED. REMAINING OPTIONS ARE VERY LIMITED,
MORE LIKE TWEAKS. THE USFED HAS SIGNALED IT CAN DO VERY LITTLE,
YET THE FINANCIAL MARKETS SEEM TO BELIEVE IN AN UNLIMITED
ARSENAL AND IN MIRACLES. THE USFED IS PLAYING GAMES WITH
ITS BALANCE SHEET. THE US FEDERAL RESERVE IS SLOWLY BECOMING A TOXIC
BAGHOLDER. $$$

Operation Twist is purported to save the day. It will accomplish
nothing. Lower long-term bond yields will not help the USEconomy,
only manage the collapse better. It suffers from widespread
insolvency, as debts exceed assets. In fact, lower long-term
yields actually act as a dampening effect from the ultra-low
savings rates on savers, pensioners, and the giant pension
funds. AnetaMarkovska from Societe General
Bank charted what the flawed duration extension will look
like from the contorted twist exercise. Never lose sight
that unless the 2vs10 USTreasury Yield Curve is steepened substantially, the banks
are buried dead. They have relied upon a carry trade for
three years that is fast vanishing. They borrow short and
cheap, invest long and dear, then pocket the profit in a
recapitalization exercise. Besides, very few people are
taking on new mortgages regardless low rates, seen in weekly
Mortgage Banker Assn data. Low mortgage rates only serve
to prevent a sudden crash in housing prices, as in controlled
demolition. It is an old adage, that to ensure the US banking system expires in death, the curve must completely flatten for game over. The
end result will be yet another TARP to bail out the banks.
The SocGen research expects that the USFed will
dump $420 billion worth of USTreasurys in
the range of 1.5 to 4 year maturity, and use them to purchase
bonds with a maturity longer than 4 years.

SocGen wrote, "The next
step from the Fed will almost certainly be for more easing
and it will almost certainly be duration extension. The
only question is September or November? Prior to the August
employment report, the market was split 50/50 on the timing
of the announcement. The report pushed the odds in favor
of September, which is our central scenario. We estimate
that at the upper limit, the extension could amount to
as much as $420 billion in duration purchases, which would
make it comparable in size to QE2. However, the Fed
may not announce the full amount up front, but instead
give a monthly run rate and re-evaluate at each meeting.
Matching the previous run rate, we would expect the Fed
to do roughly $55 billion per month. This could take the
Fed as far as April 2012, at which point inflation should
have receded enough to put QE3 back on the table."

Execution of the Twist will take place over the course of
several months. The USFed is likely
to indicate a monthly run rate to be re-evaluated at each
monthly meeting, rather than to divulge a total volume affected.
The USFed invited a nasty backfire with too much transparency
for QE2. Under QE2, the embattled central bank increased
their holding by $75 billion per month, of which $55 billion
was allocated to the long end of the curve beyond 4 years
maturity. If repeated, the same monthly run rate and executed
assumption of liquidating all assets in the 1.5 to 4 year
bucket, the Operation Twist (aka QE2.5) could stretch over
7 or 8 months. If announced in September, it would last
through the end of April. The benefit to banks is minimal,
and to the USEconomy nothing at
all. The $55 billion in POMO recycling will permit the banks
to flip assets to greater fools, no shortage there. The practical
effect will be to induce safe haven pursuit such as Gold
and to a lesser extent crude oil. See the Zero Hedge article
(CLICK HERE).
My firm belief is that Operation Twist is a diversion story
from the reality of continued QE2 that never stopped, even
amplified.

The actual consequences, hardly systemic benefits, are two-fold.
Interest rates pushed to low levels 1) keep USGovt borrowing
costs down during a time of exacerbated exploding deficits
that must be financed and rolled over, and 2) enable the USFed to
show a minor profit on portions of their ruined balance sheet,
as mortgage bonds mature for cash and USTreasurys rise
in principal value. To be sure, the banking system is
approaching a bank holiday in the United
States and Europe,
perhaps simultaneously. The USFed is
fine tuning its wreckage, sorting out portions of its swill
of toxic paper, which some call correctly rearranging chairs
on the USS Titanic deck. Soon the USGovt will have to claim
the entire toxic gaggle on its balance sheet. The USGovt
is a willing repository for vast toxic paper. Take for instance
the Maiden Lane portfolio, a toxic tranche processed. JPMorgan CEO Jamie Dimon signed
off on hiring BlackRock for no
justifiable reason except to dispatch the toxic portfolio
and avert a $1.1 billion loss. Odds favor that BlackRock came to the rescue by processing it through the
New York Fed directly as QE1 was underway. The QE programs
feature sponsored dumping processes. See the Implode Explode
article (CLICK HERE).
Ride to conclusion, a new corner, marked by 1.5% long-term USTreasurys,
an end to the carry trade, no upside on bond investment,
a contradiction against rising prices, and a global invitation
to prick the bubble, with leakage sending the Gold price
to $5000.

◄$$$ THE USFED HAS CONTINUED TO MONETIZE USTREASURY
BONDS. THEY NEVER STOPPED. THE CENTRAL BANK IS THE PRIMARY
IMPETUS BEHIND THE USTBOND RALLY. WHEN THE USFED SAID "NO
MORE QE" PUBLICLY, THEY MEANT ACCELERATED DEBT MONETIZATION
BUT IN SECRECY. WITNESS STEALTH GLOBAL QE. THE RISKS TO A
RUN ON THE USDOLLAR ARE TOO GREAT TO BE TRANSPARENT ABOUT
POLICY. A HIGHER GLOBAL COST STRUCTURE IS NOT DESIRED. IT
WILL COME ANYWAY ON THE NEXT STIMULUS TO THE USECONOMY AND
TARP PROGRAM FOR THE BANKS. THE FLAT USTREASURY YIELD CURVE,
WHEN ACCOMPANIED BY A LARGE TRADE DEFICIT AND FISCAL DEFICIT,
SIGNALS SYSTEMIC FAILURE. $$$

As steadily mentioned in the Hat Trick Letter, the USFed is
full of grand deception, their public statements bold lies. Behold
the enormous infusions of fresh phony money into the system
from the top, like a one-meter diameter water main. This
is a smoking gun of still vast central bank activity. The USFed has
been heavy buyers of USTreasurys,
flooding money into the system. They have a purpose, to force
the flat Treasury curve, where the long yields have gone
under 2%. Those who do not believe that QE is a constant
fixture are badly mistaken. The Jackass analysis has warned
that Quantitative Easing would be secretive and not stop, even
turned global with other central bank participation. Notice
the evidence.

Notice the complete flattening of the USTreasury Yield
Curve. It cannot signal an economic recession since the short
end is practically zero. What the curve below does signal
is a liquidity trap, economic deterioration, bond market
bubble pathogenesis, capital destruction, and systemic failure. Observe
the same trap that the Japanese found themselves stuck in
for over a decade. They endured like in a protective cocoon
of time, since they had industry and trade surpluses. The United States has neither
in critical degree. Be sure to know that such charts and
identified patterns are not to be found in modern Keynesian
textbooks. They are useless.

◄$$$ USGOVT HAS ALREADY SURPASSED THE NEW DEBT LIMIT
IN AN OUTRAGEOUS FLOW OF RED INK. IN JUST ONE MONTH FROM
THE DEBT LIMIT EXTENSION, IT HAS BEEN BREACHED, AND ILLEGALLY
SO. THE DEBT DOWNGRADE WAS DISMISSED AS FRIVOLOUS AND IRRELEVANT,
BUT THE VIOLATION IS ON THE TABLE FOR ALL TO SEE. THE NEW
IMPERATIVE OF ECONOMIC STIMULUS AND LABOR MARKET AID WILL
DICTATE A DEBT LIMIT $2 TRILLION
WITH ALARM, AS AUSTERITY WILL BE DISCARDED. $$$

The Credit Default Swaps rates for the USGovt debt deserve
a much higher value. The debt limit put in place on August
2nd has already been breached. The cumulative debt has gone
past $14.692 trillion. This is Deja Vu again, a travesty, a flaunt of
the system, but with no attention paid during this round.
Just over five weeks ago, with pomp and pageantry, in the
theater of crisis, against a backdrop of debt downgrade by
Standard & Poors, the official
debt ceiling was raised from $14.294 trillion to an intermediate
ceiling of $14.694 trillion, or $400 billion more. As
of September 2nd, less than a month since the expansion,
total US debt was at $14.697 trillion. Nobody
cares. The US press has been silent, since after all an
impressive USTreasury Bond rally
is in progress, one that purportedly contradicts the S&P
downgrade. All this happened when Moodys and
Fitch repeated their justification for AAA ratings, and Warren
Buffet his AAAA rating. Refer to the Table III-C (Debt Subject
to Limit). See the Zero Hedge article (CLICK HERE).

This breach occurred while the USCongress was on vacation in August. None of the conditions
for the agreed upon increase have been addressed. Bear in
mind that the mindset of budget austerity that permeated WashingtonDC in
July has disappeared. Expedience of crisis during the great
economic slide has taken over. The US nation
heading into recession pushed a higher priority with its
higher moral ground. The $447 billion Obama Stimulus Bill,
or whatever it is called, a Jobs Bill, a Tax Bill, a Rescue Bandaid Bill,
a Tourniquet Bill, will motivate the USCongress to
agree to a debt limit that will surpass $2 trillion. Be sure
to know that no economic plan is within this economic plan,
mostly panhandles this round and
parasites next round. The bill manages the wreckage, and
guides the rapid decay process, laying Uncle Sam on the ground
gently. This will give wiggle room. See the VOA article (CLICK HERE).

BEYOND TIPPING POINT

◄$$$ ERIC JANSZEN CLAIMS THE UNITED STATES HAS RUN
OUT OF TIME, AFTER TAKING WRONG PATHS IN THE WRONG DIRECTION,
AS CRITICAL OPPORTUNITIES HAVE RESULTED IN GRAND WASTED EFFORTS
AND A COLOSSAL SUM OF SQUANDERED MONEY. THE URGENCY WAS IGNORED.
DENIAL OF INSOLVENCY, BANKER LARGESSE, PITHY STIMULUS, AVOIDED
REFORM, DARING DEBT MONETIZATION, ABSENT AID TO HOMEOWNERS,
IGNORED IMBALANCES, ATTACK OF FOREIGN CREDITORS, PERMITTED
BOND FRAUD, DUMB PROGRAMS, WASTED EFFORTS, ALL INITIATIVES
HAVE BEEN DREADFULLY FAR OFF TARGET. THE DOCTRINES EMPLOYED
ARE FALLACIOUS AND DESTRUCTIVE TO CAPITAL ITSELF. THE SYSTEM
CANNOT BE BROUGHT BACK. THE LIMITED OPPORTUNITY (IF IT EXISTED) IS LOST. A RECESSION TIPS IT TOWARD FAILURE.
$$$

Eric Jantzen is an insightful
excellent analyst, and has provided adept chronicles for
the entire disaster than began several years ago. He wrote, "I
warned in my 2010 book The Post-Catastrophe Economy: Rebuilding
America and Avoiding the Next Bubble that the US was in a race against
time to get its economic house in order. The window of
opportunity to get the economy back on a strong growth track
was approximately two years starting in the second quarter
of 2009. By the time my book came out in the fall of
2010, I was warning in book tour interviews that recovery
policies were taking us in the wrong direction, that
attempts to restart the FIRE Economy (the economy oriented
around the finance, insurance, and real estate industries)
will fail at the expense of the Productive Economy (the economy
of goods and services produces that employs over 90% of consumers).
If policy makers persist with this wrong-headed approach,
I warned, the result will be persistent high unemployment,
a depreciating dollar, rising consumer price inflation, falling
home prices, and rising budget deficits. Congress did not
understand the urgency of the mission to restructure the
economy toward productive activity and away from finance-based
activities, if they understood that as the mission at all. They
argued and experimented, as if we had all the time in the
world to exhaust all other options before doing the right
thing. Now, as 3Q2011 winds down and we head into the
fall, it is apparent that our two-year deadline has come
and gone, and the stock market knows it."Jantzen does
not mention criminal activity and syndicate behavior, which
serve to compound the wrong turns and missed window of opportunity.

Time is up. The crisis has blossomed. Too late to do anything
that will matter. Nothing was even attempted at reform. In
true Nazi style, the entire cupboard was ransacked in a grotesque
episode of Fascist Business. The bankers took 99% of all
the official aid and left crumbs for the people. The USEconomy is
turning toward recognized recession. Capital has been destroyed
in a climax, as costs will rise further. The USTreasury Bond
market is crowding out credit creation. The USFed toolset
is depleted. Businesses suffer from higher cost without pricing
power. Jobs are not being created. The US leaders from all corners do not comprehend
capitalism anymore. The panic phase has begun. The people
are realizing that a solution is not coming, as they placed
trust in a broken USFed, never having trusted the USCongress.
Acceptance of the wars aggravated the path to ruin for an
unwitting nation. The USGovt deficits will accelerate toward
$2 trillion, sufficient to sound alarms across the land.
In one year, the catastrophe will be better recognized, maybe
sooner. The US stock
market has begun to echo the perceived rising panic from
the early stages of a systemic failure comprehension. The
wrong pathways could be identified as queer manifestations
of the popular Panhandle Doctrine for consumers and the Parasite
Doctrine for bankers, which persist in wrecking the USEconomy and
financial sector. The system has endured rampant capital
destruction from ruinous policy in a manner the leading economists
fail to detect. No recognition has yet come that the
United States must reclaim its industry sent to Asia, the
heart & soul of any economy, surely not by economists
beholden to the finance sector. Witness the increasing alarm
about a broken system, with opportunity lost at every conceivable
decision. See the Jackass article entitled "Panic & Anxiety
Swirl in a Storm" on Gold-Eagle (CLICK HERE).

◄$$$ THE UNITED STATES IS FOLLOWING THE DEAD-END PATH
OF THE JAPANESE, WHOSE SIGNPOSTS ARE ZIRP AND QE. UNFORTUNATELY,
THE US-SYSTEM RUNS THE SAME RISKS BUT WITHOUT SIMILAR ADVANTAGES.
LACK OF INDUSTRY AND ABSENT TRADE SURPLUSES WILL EXPOSE AMERICAN
INSOLVENCY WHILE DEFICITS EXPLODE, AS FOREIGN CREDITORS PULL
THE PLUG. THE UNITED STATES FACES SYSTEMIC FAILURE, PRECISELY
AS FORECASTED BY THE JACKASS IN 2008 AND 2009. $$$

SocieteGenerale,
the big French bank, has been in the news lately. If not
for their exposure to Southern Europe
sovereign debt, it is for their good research. They recently
published a report that warned about the Japanese Scenario,
how it should instill fear in America to the core. The United States has already entered a liquidity
trap and stuck corner of 0%, from which it cannot emerge.SocGen points to a three-stage crisis, of asset bubble creation,
then the great bust, followed by a condition unresponsive
to stimulus of any kind as long-term interest rates fall
lower and lower. SocGen warns of a Lost Decade, but they under-state
the peril. The actual risk to the United States is of systemic failure. It will
be apparent soon.

The SocGen research concluded, "Be
afraid, be very afraid. If we accept the idea of a three
stage crisis (taking as our starting points 2000/01 + 2007/08
+ 2011), we have probably reached a situation similar to Japan's
lost decade of the 1990s. A Japanese-style scenario
for the US could
gain traction, particularly if there is no real estate
recovery in the US, high unemployment levels
persist, and economic sentiment remains depressed. Such
a configuration would suggest that, in June 2011, we exit
a bear market rally, which was fueled by restocking and
QE2. Another 20% drop in the equity indices could then
be observed in the coming months if this scenario were
to materialize. The US debt
trajectory through 2016 is very worrying, and explains
the recent US rating downgrade from
S&P from AAA to AA+. The US debt
bears little resemblance to the structure of German debt
or even EuroZone debt, even after the agreement reached in the US between Democrats and
Republicans. Hence, we can affirm that the European crisis
is linked directly to the lack of a united front among
European leaders rather than the debt situation itself
as a whole. With progress (although laborios) being made on austerity plans, rates will probably
remain very low for an exceptionally long period of time." See
the Zero Hedge article (CLICK HERE).
Note that each path has its own starting point, the chart
being in days from that original date.

US interest rates will not stay low because they
should, but rather because they must, even if doing so perpetuates
and exacerbates the distortions caused by improperly priced
money. The Japanese had industry to offset falling property
and stock values. The Japanese had trade surpluses from a
vibrant industry. The Japanese, due to extremely low bond
yields, never attracted foreign creditors for debt security
investments. To be sure, they had to coerce postal pension
and government pension funds to purchase the inflated JapGovtBonds at
low yields. The United States has none of the above advantages,
and therefore will fall into systemic failure, dragged down
by widespread insolvency, inadequate income, exploding deficits,
and foreign abandonment. The latter risk will be managed
by a fostered dependence upon debt monetization and extreme
isolation, with a foreign reaction to kill the USDollar like
a cancer. The comparison of the US to Japan serves
in my opinion as a great blind spot by American economists
and bankers. They arrogantly believe that with a more developed
finance industry, the US is superior and
impervious to ruin. They arrogantly believe perhaps that
with a more powerful military, the US is
impregnable. They arrogantly believe that US$-based assets
will forever be attractive to foreign investors, sufficient
to offset the ignored, dismissed, and dispatched industrial
base of factories. They are wrong on all counts.

Never have American economists and their banker dog trainers
been more errant in dogma, beliefs,
policies, and practice. The USEconomy is
a working laboratory of capital destruction and dependence
upon inflation. The US compares
extremely unfavorably to Japan, the similarities clear, but the differences
stark and deadly. Grandstand speeches, eloquence, adulation,
and well coiffed bank executives sporting tailored suits
matter not at all in this game. The US believes
that its financial predominance can overcome its lack of
industrial critical mass, but incorrectly so. The financial
sector continues to destroy capital within the USEconomy,
as falsely price money and rising costs conspire to render
capital inactive, idle, and wasted. US Plant & Equipment
rot on the capitalist vine. Its financial instruments
act as the mortal enemy of a productive economy. See mortgage
bonds, home equity removal, credit derivatives, and fraudulent
bond arenas for starters. Tragically, the higher wages forced
three decades ago within the USEconomy by
a skein of war costs set the nation on a path that led to
globalization, a game America loses. US labor
is priced out of the global market, and USGovt taxes and
regulations deliver the death blow. Witness the death of
a nation, where the best that can be hoped for is a restructure
into six regional territories, managed by receivership tribunals.

◄$$$ GOLDMAN SACHS EXPECTS A BROAD FINANCIAL COLLAPSE.
THEY CITE THE INANE ILLOGICAL TREATMENT OF AN EXCESSIVE DEBT
BURDEN WITH EVERMORE DEBT. THEY CITE THE US-BANKS AND EURO-BANKS
BEING ON THE VERGE OF COLLAPSE. THE INTREPID GSAX RECOMMENDS
BETS THAT THE EURO CURRENCY WILL FALL AND CREDIT DEFAULT
SWAPS ON BIG BANKS WILL PAY OFF HANDSOMELY. $$$

Goldman Sachs is the epitome of a criminal organization
in finance, a predatory outfit of extreme expertise. It is
reported that to obtain vice president status, the resume
must contain a criminal fraud deed committed successfully.
Their public statements go opposite to their corporate trades.
They engage in multi-$billion bond sales programs while betting
the other side in gross misrepresentation activity, a felony.
They work predatory schemes in government bond sales that
misrepresent status. Before the financial crisis of 2008,
Goldman Sachs packaged mortgage backed securities known to
be garbage, and marketed them to investors as AAA-rated investments.
They attack clients, target positions, yank credit, and force
liquidations. They are a great vampire squid. They are at
it again. Goldman recently has been busy telling the public
that all is well, but meanwhile they are advising their most
connected and affluent clients to bet on a huge financial
collapse. On August 16th, a 54-page report authored by Goldman
strategist Alan Brazil was distributed to institutional clients,
not intended to be seen by the unwashed public. Fortunately,
a Wall Street Journal columnist obtained access and distributed
it surreptitiously. GSax must contend with many enemies,
having built a history of deceit and pillage.

Goldman Sachs apparently believes that an economic collapse
is coming. They have a strategy to exploit the opportunity. Brazil mentions
that the sovereign debt problem in the United
States and Europe
will erupt, and numerous European banks on the verge of collapse.
He accuses the US bank
leaders of attempting recklessly to solve debt problems
with more debt. High anxiety has hit the global financial
community, where many are poised to hit the panic button,
a grand breakdown expected to follow. The big Western
banks cannot admit how bad conditions are publicly, the
insolvency spreading like cancer, but privately they are
freaking out. According to the Wall Street Journal, analyst Brazil believes
that "as much as $1 trillion in capital may be
needed to shore up European banks, that small
businesses in the United
States, a past driver of job production,
are still languishing, and that China's growth may
not be sustainable." That is a broad stroke touching
on three continents. Bear in mind that this comes from
a top Goldman Sachs analyst, who must be bristling with
anger on the exposure.

Brazil describes
the debt crisis of the United
States and Europe.
He wrote, "Solving a debt problem with more debt
has not solved the underlying problem. In the United
States, Treasury debt growth financed
the US consumer but has not had enough of an impact
on job growth. Can the US continue to depreciate the world's base currency?" He
must see the futility of QE programs that have raised the
entire cost structure from USDollar debasement.
This report is intended for institutional investors with
oversized accounts. He covers the financial crisis in Europe. Brazil writes
about how the Euro is headed for the rocks and numerous financial
institutions in Europe could be headed for collapse. As always, GSax sees an opportunity
to exploit the situation for profit. The Business Insider
summarized the investment guideline that Brazil gave
in the report regarding the impending collapse in Europe.

Buy a 6-month put option on the Euro currency versus
the Swiss Franc, thus betting the Euro will drop against
the SWFranc. Speculators would have done well to wait for
the SWFranc to fall those 700
to 900 basis points last week. Hence many GSax clients
might have been burned badly immediately.

Buy a 5-year Credit Default Swap on an index of European
corporate debt, called the iTraxx 9.
This is a bet that some big corporations will default,
probably banks. The CDSwap is
a debt insurance policy, designed to pay off upon bond
failure.

Goldman Sachs is not vulnerable to many consequences. It
must deliver on lawsuit awards and heavy fines, but they
are small compared to the profits, the proverbial minor
cost of doing (fraudulent) business. They receive slaps
on the wrist, but basically operate with broad impunity.
The reality is that the top levels of the USGovt are littered
with people with GSax pedigree, by design. This is part & parcel
of the coup d'etat started by Robert
Rubin and consummated by the 911 attacks, a full scale takeover
of the USGovt. Only dopes and dupes believe the official
story. Most Europeans are well aware, while the American
crowd is at least half asleep. Goldman is among the sacred
insider banks deemed as Too Big To Fail,
the label which should be regarded as a criminal green card,
toward the highest level of membership in the Fascist Business
Regime. Despite being insolvent, despite being the primary
narcotics money laundering institutions, at this point, the
Big Six banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase,
Citigroup, Bank of America, and Wells Fargo) possess assets
equivalent to approximately 60% of entire USEconomy gross
national product. Furthermore, Goldman Sachs was the second
biggest donor to Obama's campaign in 2008. That explains
the GSax appointment of Geithner as
Treasury Secy and numerous regulator
posts being filled by GSax insiders. Expect nothing on investigations
or prosecutions, but private lawsuits have grown into a veritable
parade. So far Bank of America is the prime target.

◄$$$ GSAX POINTS TO THREE INDICATORS
OF QE3. THEY ARE EACH ACTS OF DESPERATION. A HIGH
PITCH INTERNAL BATTLE
IS GOING ON BETWEEN BERNANKE AND THE GOLDMAN SACHS TEAM
IN THE CONTROL ROOM. THE GSAX TEAM WANTS MORE DEBT MONETIZATION
AND BROADER ASSET SUPPORT LIKE WITH MORTGAGE BONDS AND
EVEN STOCK INDEXES. LOOK FOR A POSSIBLE NEW ADOPTED USFED
MANDATE TIED TO ECONOMIC GROWTH IN G.D.P. TERMS. THIS IS
ALL OFF THE MARK AND TOO LITTLE TOO LATE. $$$

USFed Chairman Bernanke is at
risk professionally, for his opposition to Goldman Sachs.
The venerable syndicate monolith is not accustomed to being
snubbed on its policy recommendations, done in a highly visible
display at the Jackson Hole conference. GSax had called for QE3 to kick in immediately
and urgently so. But Bernanke only left the QE3 door
open, not enough to satisfy the GSax superiors at the New
York Fed. The next battle, loaded with counter-attack by
the fortress stronghold against the upstart chairman, is
expected at the next Federal Open Market Committee meeting
on September 20 and 21. The USFed risks incurring the wrath
of Goldman at its own peril. To date, the measures
such as Operation Twist (using maturing short-term bonds
to purchase long-term USTBonds)
have begun but will be proven as ineffective. At least they
have not been harmful, like causing a big US$ decline in
the exchange rate, and consequent cost structure escalation
that assures a dangerous economic recession. Watch for unusual
pressure points exerted against Bernanke, such as his personal
background.

GSax painted a backdrop to justify its policy calls. They
describe the USEconomy as stagnant,
the unemployment conditions likely to worsen. They assess
the inflation risk as low, due to excess capacity, that old
tired nonsensical plank that ignores price risk from a currency
decline. They regard the benefit of further QE debt monetization
as greater than the risks involved. So far the Bernanke plan
is for shifts in their balance sheet (like O.Twist,
a sincere reference to the Dickens young conman character)
and a cut in the interest rate offered to Excess Reserves,
that fable of carry trade proceeds locked at the USFed.
Goldman Sachs recommended three urgent radical actions within
a new QE3 program of initiatives. They are all desperate
measures, best described as additional destructive actions.
These measures are worse than too little and too late, since
they will make matters worse, but beneficial to Wall Street
firms. In fact, if instituted, such policies could invite
extreme counter-attacks to the USDollar,
and open ignition systems on the Gold & Silver price.
Lately the USDollar has been buffeted nicely by the ruinous Euro. However,
both have been circle the toilet in a corresponding downward
flush in the monetary men's room. See the Zero Hedge article
(CLICK HERE).

1)An
extension of the QE program into markets other than USTreasurys and USAgency Mortgage
Bonds, as in private sector securities such as stocks & bonds.
The Federal Reserve Act forbids such activity, requires funding
from the USCongress, and if done
would be done secretly. The object of support would be non-conforming
mortgages, corporate bonds, stock indexes, even baskets of
real estate. If done, the USFed could
be isolated as a rogue central bank with USDollar implications.

2)A
much bigger QE program, up to the extreme version of a promise
to buy as many securities as needed to hit a specific yield
target. Think a rate cap on long-term USTBonds,
or a stock index floor. These are concepts once suggested
by Governor Bernanke back in 2002 when on the USFed Board. This would involve a sizable expansion in the USFed balance sheet. The internal tension might be a problem,
as the tail risk would require buying up the entire supply
of securities in the targeted sector to make good on their
promise. They could lose control of certain markets. If
done, a deep dependence on the USFed could
be revealed.

3)An
explicit or implicit change in the USFed policy
targets. The inflation and employment mandates could be joined
by an economic growth (GDP) mandate in the form of targets.
The basic GDP target could circumvent criticism of inflation
versus deflation overshoots, and would enable the USFed to
formally claim that improperly measured inflation is growth.
That has been a Jackass warning for a full year. A move to
a nominal GDP target is tantamount to a temporary increase
in the inflation target. Perhaps do not expect item #3 to
come to pass, since failure would be immediate during a recognized
recession.

◄$$$ USFED DISSENSION HAS NEVER BEEN GREATER. GOVERNOR
EVANS OPENLY ADVOCATES A QE3 PROGRAM. HE EXPLAINED ITS MERITS
AND SUCCESS, A STRAINED ARGUMENT. THE NEXT HINT OF QE WILL
LIGHT A SMALL FIRE UNDER GOLD. THE DEBT REPURCHASE WITH MATURING
ASSETS IS THE CONSENSUS ALTERNATIVE, BUT IT WILL ACHIEVE
NOTHING EXCEPT TO PROVIDE MORE BANK AID. $$$

Chicago Fed President Charles Evans in late August advocated
a strong central bank accommodation for a substantial period
of time, as the USEconomy slides
sideways. A member with voting rights, Evans has been a principal
policy dove at the policy setting Federal Open Market Committee
this year. He expressed favor for the most aggressive policy
actions under consideration to boost the recovery process.
He openly urged the USFed to clarify
its policy intentions in order to obtain better results.
He indirectly labeled the current situation as a recession. "It
is difficult to characterize the labor market as anything
other than consistent with being in a recession. The
economy is really going sideways more than anything else.
I am in favor of some of the most aggressive policy actions
of anyone on the committee. Strong accommodation needs to
be in place for a substantial period of time. I think we
would have been so much worse off if we had not had the accommodation
that is been in place," Evans urged the USFed to set targets that would clarify its policy intentions,
such as suggesting that interest rates could remain low as
long as medium term inflation remained below 3% and until
employment falls to acceptable levels. Given the domestic
and international opposition to Quantitative Easing, in continuation
of the $2.3 trillion in USTBond and assorted mortgage bonds to help the economy,
the likelihood of a formally announced QE3 is not high. However,
expect QE and its corrosive debt monetization to continue
below the surface in heavy volume, no longer easily visible. The
clear consensus is for the weak-kneed alternative of reinvestment
of maturing USFed assets into long-term bond purchases. That will accomplish
nothing, but offer the appearance of doing something. See
the Reuters article (CLICK HERE).

DEAD BANKS OF AMERICA

◄$$$ THE USGOVT FILED LAWSUIT AGAINST 17 US-BANKS
IN A BIZARRE TURN OF EVENTS. THE CAPTURED CONTROLLED FORT,
COMPLETE WITH OVERSIZED CESSPOOL, HAS TURNED TO ATTACK ITS
MASTERS IN THE TOWER CONTROL ROOM. ACTUALLY THE FANNIE MAE
PARENT ORGANIZATION FILED THE LAWSUIT OVER MISREPRESENTATION.
WITNESS REVENGE AND DIVISION FROM INSIDE THE FORTRESS. FINALLY
THE CULPABLE BIG BANKS ARE UNDER FIRE FROM BROAD-BASED ATTACKS.
$$$

In somewhat a shocker, the USGovt has files lawsuits against
17 big banks and mortgage firms, five of which are foreign. Fannie
overseers seek $105 billion in damages from lenders tied
to fraudulent mortgage bonds in its possession. The Obama
Admin created a new federal agency to clean up the real estate
and financial crises, the Federal Housing Finance Agency
(FHFA). Its most meaningful deed is the lawsuit, alleging fraud and
misrepresentations over mortgage backed securities they sold
to Fannie Mae and Freddie Mac. The agency alleges that Countrywide
Mortgage (now under Bank of America stewardship) sold securities
to Fannie & Freddie that "contained materially
false or misleading statements and omissions, and falsely
represented that the underlying mortgage loans complied with
certain underwriting guidelines and standards, including
representations that significantly overstated the ability
of the borrowers to repay their mortgage loans. The mortgages
had different and more risky characteristics than the descriptions
contained in the marketing and sales materials provided to
the enterprises for those securities." The Fannie
overseers implicitly admit to buying bonds blindly in a mass
production process. Lawsuits have been filed against the
following firms in alphabetical order (** signifies foreign):

Ally Financial (GMAC)

Deutsche Bank **

Merrill Lynch (Franklin)

Bank of America

First Horizon

Morgan Stanley

Barclays

General Electric

Nomura **

Citigroup

Goldman Sachs

Royal Bank of Scotland **

Countrywide

HSBC North America

SocieteGenerale **

Credit Suisse **

JPMorgan Chase

Implicit is the understood ignorance, naivete,
or reckless abandon by F&F themselves, too busy to check
on what they were purchasing, in service to the nation and
its latest asset bubble pursuit. The unprecedented government
lawsuits against the financial institutions alleged violations
of federal securities laws and common law in the sale of
residential private label mortgage backed securities. The
suits are seeking damages and civil penalties under the 1933
Securities Act similar to a suit filed earlier this summer
against UBS Americas bank. Each complaint cites damages for
negligent misrepresentations, and some of cite state securities
statute violations or fraud. The FHFA agency acts as official
conservator of Fannie Mae and Freddie Mac, responsible for
preserving their assets, a management role over the cesspool.
A dangerous rift has formed, since F&F act as clearinghouse
for several $trillion fraud schemes. Hidden leverage is either
at work or implied. The complaints were filed in New
York and Connecticut courts on September 1st. The lawsuits
were filed under the authority of the Housing & Economic
Recovery Act of 2008. See the Housing Predictor article (CLICK HERE).

◄$$$ BANK OF AMERICA IS DEAD. ITS INSOLVENCY
IS REVEALED EVEN IN THE VISIBLE REALM. IT HAS BEEN WALKING
LIKE A ZOMBIE FOR THREE YEARS. FINALLY IT IS READY TO KEEL
OVER. THE TIPPING POINT IS SALE
OF ITS VIABLE ASSETS, LEAVING THE ROTTEN RANCID FETID CORE
TO REMAIN, A WEAK TREE STANDING BEFORE A STORM. THE PRESSURED
NEED FOR YET ANOTHER T.A.R.P. FUND RESCUE FUND FOR THE BIG
BANKS IS COMING INTO VIEW. IF THE USGOVT CANNOT PERFORM THE
TASK, THE USFED MUST DO IT. $$$

Even compromised bank analysts can see the obvious, that
the US banking
system has come full circle since
2008. It is in big trouble again. The banking system is at
high risk of seizure. Nothing has been fixed. Housing prices
continue down, including commercial properties. Bank balance
sheets suffer from a new rotten element in accumulating REO
homes seized in foreclosures. So the external seizures
(foreclosures) ironically have transformed into internal
seizures that include absent inter-bank lending due to intense
distrust within the industry. Bank of America is on the
verge of failure, dealing with a dire cash shortage, its
insolvency becoming visible. A bank run by depositors
could seal its fate with the liquidator. The big US bank
serves as a great symbol of the banking industry, since BOA
is involved in every type of bank operation across the nation.
The rumor mill has that JPMorgan may be circling around BOA
like a vulture looking for an angle to the meat. Leaked
news from consulting service firms working on the BOA carcass
report that internally the big bank has slashed expenses
and procurement budgets to the bone. The non-core
businesses are being auctioned off to raise urgently needed
cash. They are selling the businesses that have a value bid
in the market. Conversely, the majority of BOA core assets
are commercial and residential mortgages, goodwill (extravagant
sums paid on acquisitions), and other exotic toxic accounting
kept off the balance sheet such as variable interest entities. The
core contains only rot, a pruned tree missing its viable
branches and fruit. Harken back to Enron days with such specialty rot. Hence,
what remains in the BOA business is pure toxic waste. The
big US bank is finally ready to drop dead. Not even
narcotics money can keep it afloat. BOA has become a hollow
tree facing a storm, without reinforced structure, only rot
and putrid paper bark coverings.

Make a quick look at BOA financials. They have $2.2 trillion
in assets. It reports an absurd $222 billion in book value,
of which $80 billion comes under goodwill and intangibles. In
other words nothing of any value. Henry Blodget asserted
that the $80 billion is worthless. With the stroke of a pen,
adjust the book value down to $140 billion. When confronted
by the Blodget analysis, a BOA
spokesman distracted attention from the topic at hand, and
instead attacked the analyst's legal problems from the internet
bubble era. Take their response as a off-handed
confirmation of a correct analysis. BOA owns $139 billion
is home equity loans, a troubled niche. Given the non-senior
position of such loans, one can safely assume they are worthless.
Bank analysts commonly regard home equity and second mortgages
both to be total 100% losses. Nearly half of their remaining
asset base is commercial & residential mortgage paper.
BOA self-administered estimates on value probably involve
an over-estimation of such assets by at least 15% to 20%.
That is another $200 billion of impairment. By the time
the dust clears on a rational realistic accounting analysis,
Bank of America is technically insolvent
even in the visible realm. The real rub comes from accounting
off the balance sheet. The actual balance sheet value is
at least negative $300 billion and probably 2x to
4x that amount, as in minus $1 trillion. BOA is the poster
boy for the basement toxic swill beset by profound embedded
fraud, corruption, and USGovt sponsored theft, at an order
of magnitude worse than in 2008. The USEconomy has
returned to recession mode in a gallop, which will compound
the bank insolvency and topple the dead rotten trunk and
limbs in full view.

In addition to aUSFed secretive Quantitative Easing
to prevent a string of USTreasury Bond
auction failure events, the USGovt will be forced to do
two things. It must provide a Stimulus Package, by whatever
name it chooses, to buttress the USEconomy sliding
rapidly into recession. The USGovt will also be forced into
another TARP Fund to rescue the even more dead big US banks. If
the USGovt does not rescue the banks with another $700 billion
fund, then the USFed will be forced
to save their brethren, their partners in crime, their syndicate
associates. THE NEXT OVERSIZED FISCAL AND BANK BAILOUTS WILL
JETTISON GOLD UPWARD IN PRICE, AS USDOLLAR DEBASEMENT WILL
BE CRYSTAL CLEAR. Look for a half-baked plan for either the USDept Treasury
or JPMorgan to assume responsibility for Bank of America.
JPMorgan could use the opportunity to carve up BOA and digest
some worthwhile assets. Doing what it does best, just like
with the Bear Stearns resolution, JPMorgan will organize
an official RELOAD with USGovt help. After Bear Stearns died,
JPM lined up a ripe $138 billion to handle supposedly some
private accounts that were taken in the assumption deal.
They are adept at cherry picking, seen also with Washington
Mutual carvings, with wretched refuse sent to Fannie Mae.
The nationalized mortgage cesspool has effectively been abused
as a conduit to monetize the massive mortgage housing debt
bubbles that Greenspan adeptly blew, of course with effective
risk offloaded. History will record the event as a 6am Saturday
morning bankruptcy court session in Manhattan
in the autumn of 2008. It was a pure JPM RELOAD for timely
recapitalization, funds provided for market intervention,
price fixing in the gold market, and USDollar stabilization efforts. See the Truth in Gold article
(CLICK HERE).
An experienced German banker with extensive North American
business coverage made a terse pointed comment. He wrote, "Bank
of America will
collapse and take a couple of big US and European banks down
with it, Deutsche Bank included."

◄$$$ GRAB A SEAT. BE READY FOR THE BIG US-BANKS TO
EAT EACH OTHER IN A BATTLE FOR SURVIVAL. THE FIRST STEP WAS CONSOLIDATION AFTER THE 2008
LEHMAN PLANNED KILLJOB. NEXT IS COMPETITION DURING A DEADLY BATTLE
AS THE COLLAPSE IS UNDERWAY. $$$

No evidence is offered. Just pure speculation. When facing pitched battle and deadly
attack, syndicates usually turn on their own weaker partners.
History is an accurate guide. Bank of America staggers on
the plains as dead meat awaiting the swift birds of prey
from overhead attacks. Its CEO is a weak player in Bryan
Moynihan, whose net worth is 1% of his Wall Street cohorts,
hardly brethren. Citigroup stands out for different reasons.
Its client base in the retail business is being moved. Notice
Jamie Dimon of JPMorgan griping
like a little child about capital requirements, calling the
Basel II rules blatantly anti-American. These are signals
of imminent internal desperation and squabbles. The big US banks, having turned zombies in late 2008,
are heading into stormy lands. The insolvency has caught
up to them. Their balance sheets are growing worse negative.
Their insolvency has become deeper, in recognized fashion.
They must recapitalize. They face bond investor lawsuits
and hostile mortgage payers. They are losing court cases.
They have European bond exposure. They are locked out of
European bond auctions. They are on the extreme defensive.
In late 2008 and early 2009, they responded by attacking
their own hedge fund clients and forcing a broad commodity
market decline. This time they have far fewer response options.
They will turn on each other as easy targets are identified
and exploited. They will not consolidate so much as cannibalize.

◄$$$ BANK OF AMERICA IS DESPERATELY RAISING
FUNDS. THE ASTUTE EYE CAN SEE BLATANT PLOYS TO LIFT THE STOCK
SO THE BIG BROKEN BANK CAN SELL STOCK IN A RECAPITALIZATION
MANEUVER. IRONICALLY, THE REMAINING PIECES TO THE B.O.A.
BUSINESS ARE IN RUINS. SO STOCK ISSUANCE WILL BE DIFFICULT. $$$

Warren Buffet invested $5 billion of Berkshire Hathaway
funds in the dead tree Bank of America. The deal includes
warrants at the $7 share level that already are spurious.
Numerous analysts have come out in opposition to the Buffet
purchase of Bank of America stock. My full expectation was
for the BAC stock to fall toward 7.0 flat before long, but
it did so faster than anticipated. My view is that this deal
is the second conducted by Buffet in order to win favor,
the first being the investment in Goldman Sachs two years
ago, during a time of need amidst battles for survival, at
least of image. The Buffet favor is essentially a second
Wall Street club membership fee. What Buffet earns is
protection from Wall Street assaults, like shorting of stocks
or even naked shorting, rumor mongering, investigations for
bond or tax fraud, assists to hedge fund attack dogs, and
more. He might have earned favors in the derivatives arena.
Buffet has lined himself up for sweet deals, like perhaps
in Fannie Mae home dispositions, or Credit Default Swap investments
before a designed killjob. See
the Finance Fortune article (CLICK HERE).
The real story is not in the news disseminated, but items
in the cracks where favors are won. The basic interpretation
is that BOA is in dire need of a secondary stock issuance
to recapitalize. It has resorted to alternative methods. So
the Buffet deal added some legitimacy to a dead tree image.
It will not work, as the stock will struggle to stay above
the important $7 level. Look for a string of secondary stock
issuances to come, made urgently necessary to finance the
bond investor lawsuit awards. Expect narcotics money NOT
to want to participate in payouts. That is the hidden pitched
battle behind the scenes, the narco barons
deciding to cut off BOA and to let it die. They are probably
making preparations in recent weeks and months, saving the
better parts.

The next asset sale of substance was the sale of $8.3 billion
in Chinese Construction Bank stock, the 5% stake held by
Bank of America. The buyers were the same sovereign wealth
funds that bailed out the Greek banking sector recently.
BOA sold 13.1 billion shares in CCB, but the comedy was in
the press release. BOA claimed it really did not need the
cash. Orwellian language cannot fool the wise. BOA is desperate
for cash. In fact, the beleaguered bank struggles to abide
by the Basel guidelines, as it cuts risk-weighted assets
by $16.1 billion. The sale will generate about $3.5 billion
in additional Tier 1 capital. The total on a single week
was $13.3 billion in new capital which BOA assures it does
not need. Try not to laugh. See the Zero Hedge article (CLICK HERE).

Other woes to Bank of America will make a severe dent on
their cash and reserves position. The USGovt named BOA as
a target in the mortgage bond lawsuit. Furthermore, the Federal
Deposit Insurance Corp has rejected the proposed $8.5 billion
self-designed limit on mortgage bond liability agreed upon
with major players Blackrock, MetLife, and New York Fed.
Worse, American Intl Group has filed a $10 billion lawsuit.
It was a bold maneuver to attempt to cap the liability, but
it drew attention. Far more players are involved as victims.
For every major name as victim in mortgage bond fraud, another
10 smaller players exist, including cities and states. The
blood will flow freely from the BOA balance sheet in coming
months. See the Zero Hedge article (CLICK HERE).

◄$$$ CHRIS WHALEN BELIEVES BANK OF AMERICA SHOULD
DECLARE BANKRUPTCY AND QUIT THE GRADUAL DISSOLUTION OF THE
FIRM THROUGH JOB CUTS. WHALEN FORESEES BOND FRAUD LIABILITY
AS THE SWORD TO KILL THE BIG BROKEN BANK. $$$

Asset sales on one side, worker parings on the other, Bank
of America has shaped itself as a dead hollow tree without
the resident fund flows required for limb maintenance. The
army of insects has eaten its innards. Its water supply is
toxic, the roots rotten. Chris Whalen is a superstar bank
analyst. Curiously, he believes the BOA core operating businesses
are fine. He sees no need for the bank to restructure them
and releasing thousands of employees. The latest count was
40,000 workers cut. What Whalen fingers as an imminent dire
threat is their ongoing liability from the mortgage underwriting
that Bank of America's subsidiaries did during the housing
bubble. The litigation exposure he regards could be staggering
and costly. Whalen argues that it will bankrupt the company,
forcing regulators to step in and restructure it. He does
not believe delay is wise. Instead, Whalen says, the USGovt
should seize Bank of America and
restructure its debt, equity, and legal obligations immediately. Their
operating businesses (retail branches, commercial lending, wealth management)
should continue in function. The giant firm could then be
refloated with a new ownership structure. Bank of America
would be provided an opportunity to be clean, lean, and competitive,
the model being General Motors and its supposed success story.
However, no such seizure or restructure is planned or contemplated.
So the big US bank flagship will rot in place, be subjected
to relentless attack, and suffer from much more profound
insolvency. It risks sinking under its own weight or toppling
from a recession storm. See the Business Insider article
(CLICK HERE).
One an only wonder if legal prosecution will be part of any
plan, before or after the bank's failure.

For a reliable confirmation of imminent demise, consult
the Credit Default Swap rate, the bond default insurance
cost. It has been zooming higher in recent weeks. In the
second half of August, the CDSwap rate
for BOA debt (death) insurance doubled from the 1.5% range
to above the 3.0% level. See the Zero Hedge article (CLICK HERE)
which is a little old. The Lehman failure in 2008 was foretold
reliably by the same CDSwap device
as warning signal. Reggie Middleton is an excellent bank
analyst also. He reviews the US bank exposure to the Southern
Europe sovereign debt that is in the slow process of grand
ruin. His thorough work is always worth reading and digesting.
He calls it a European soap opera that will have some surprising
fallout on US banks. See the Zero Hedge article (CLICK HERE).

◄$$$ DISPOSITION OF FANNIE MAE OWNED HOMES WILL BE
CARRIED OUT THE USUAL WAY, WITH BLATANT FAVORITISM. THE GOLDMAN
SACHS CLAN WILL BE THE BENEFICIARY OF THE HEAVY DISCOUNT
IN THE PROCESSING HOUSE. THE FASCIST BUSINESS MODEL PERPETUATES,
NO BENEFIT TO THE MASSES. SOME DOWNWARD PRESSURE ON HOME
PRICES IS COMING DURING A LIQUIDATION PROCESS. $$$

Recall the favoritism showed to the big US banks during
AIG bailouts on bond default insurance. Recall the favoritism
showed to the big US banks
on toxic bond redemption by the USFed.
The same will occur with disposition of Fannie Mae homes
to be processed. The Fascist Business Model has not changed
one little bit. A bargain processing plant is to be created,
but not with public participation, only insiders, with flimsy
justification. An enormous transfer of wealth from the
public to private sector is about to begin. The USGovt will
engage in liquidation in bulk of its massive portfolio of
foreclosed homes owned by the HUD family, led by flagship
cesspool steamers Fannie Mae & Freddie Mac. The buyers
will be private investors in what are called vulture funds.
These homes are the property of the USGovt, technically by
the taxpayers and citizens collectively, but they will be
sold to private investor conglomerates at huge discounts
to real value. The controllers favor their brethren. The
public is forbidden to participate. Dominating the buyer
class of investors will be the private equity and hedge fund
giants in the community, such as Goldman Sachs and its well
placed subsidiaries. Some foreign sovereign wealth funds
able bring $billions to each transaction are also invited,
surely the back end of past favors to invest in USAgency Mortgage
Bonds. The ravaged US citizens will
receive pennies per dollar for the sold homes, but be permitted
later to rent them back at market rates. The Wall Street
mill continues to churn guaranteed profits.

The Federal Housing Finance Agency (FHFA), the USDept of
Housing & Urban Development (HUD), and the USDept Treasury
issued a formal Request for Information (RFI) concerning
the disposition of the inventory of foreclosed homes owned
by the USGovt agencies. They seek guidelines for executing
the process of elite largesse, a facade. The RFI was actually
written and structured by the investors who will participate,
an easy step since Wall Street controls the USGovt finance,
mortgage cesspool, and related operations. The RFI doubles
as a trial balloon to check whether the public is fast asleep.
Of course it is. The next step will be Request for Proposals,
a formal bid and plan for these homes by investors. The
citizen taxpayers will be kept away by stated higher ground
goals, such as neighborhood enhancement, increased rental
home supply, and stabilized housing market prices. The
actual goal is a bulk sale privatization project for the
exclusive Wall Street profit. The design is to create a wholesaler
processor entity, which excludes the public. The plan will
toss aside as impractical any public bidding by the people,
since the volume is too big. This is truly a deep insider
game, well designed long ago during the 2008 nationalization.

The entire massive HUD Portfolio of foreclosed homes is
quietly managed by a handful of private firms, a group listed
as Mgmt & Marketing Contractors. These M&M companies
are principally owned by high ranking government officials
from the various involved groups, the USDept Treasury,
HUD, FHA, and other agencies. These factions will assure
the correct buyers will win the bids, posing as fair. Expect
a parade of real estate investment trusts (REIT) and real
estate operating companies (REOC) or limited partnerships
(LP) to be made available to retail investors later on, after
meat on the table is gone, and only leftovers remain available.
See The Street article (CLICK HERE).
It will be very interesting to see if the insider clan
of buyers through their large scale processing actually
render harm to the housing price structure by offering
thousands of homes at below market prices, just to clear
the inventory. Doing so would lower the home prices generally.
If they work together like a syndicate, which they are by
subsidiary relationship, then expect them to hold the line
on price, but at a cost of time to process the mountain of
homes. Here is the important point. If they demand higher
home prices in volume sales down the channel, then the processor
vulture firms must be content in holding inventory just like
the big US banks. The downward
pressure on home prices will be felt, one way or another.

EUROPEAN CONTAGION & FRACTURE

◄$$$ EUROPE WILL BREAK UP. EUROPEAN
LEADERS KNOW THE SYSTEM IS DOOMED. THE FIRST DEBT DEFAULT
(CLEARLY GREECE)
WILL SET OFF A CHAIN REACTION OF BIG BANK FAILURES. THE CRISIS
EXTENSION IS NOT AVOIDABLE. THE COMMON EURO ARRANGEMENT WAS
DEEPLY FLAWED, BUT IN MY VIEW BY DESIGN IN ORDER TO FACILITATE
A DISASTER THAT WOULD INVITE INTEGRATION OF THE CONTINENT.
$$$

Despite pledges and oaths registered by politicians and
bankers, the European Union will fracture from its union.
The most likely start is the Monetary Union that permits
common Euro currency usage. It is doomed, since the sovereign
bonds are deeply differentiated to the point of being at
war with each other via arbitrage trading. The Euro currency
structure is suffering from gross faulty design. Countries
that are deep in debt have no flexibility, like with currency
devaluations, and wealthy countries such as Germany are
becoming deeply resentful a steady stream of welfare contributions
into the black holes of southern Europe.
The EU will break up, the sooner the better for all involved.
The chronic degenerative financial crisis in Europe has put
the future of the Euro currency in an impossible position,
along with the Union itself. The
Greek Govt default will trigger
a financial crisis of a different magnitude, enough to lead
to a veritable financial system collapse in Europe,
both bonds and banks, which would plunge the entire world
into chaos. Private debts have been transferred to the
public sector, and now they are breaking the system. The
solutions are exacerbating the situation. The EU has a larger
economy and a larger population than the United States. The EU also has more Fortune 500
companies that the United
States does. The Euro currency will
become the first casualty. Its original birth was part of
a master blueprint plan toward consolidated power, ordered
by the supra-national trillionaires.
The next chapter is uncertain, as power is shifting to the
East.

The obvious need of massive bailouts to the next biggest
nations outside Greece and Portugal will
cripple the European financial system. Italian debt is triple
the size of Greece, Portugal,
and Ireland combined. The
Euro currency is broken, its debt foundation fractured into
several extremely heterogeneous platforms, the member nation
sovereign debt. The Euro exchange rate has come down not
from union fracture, but from assured rate cuts by the Euro
Central Bank. The currency had shown stability, but with
grossly different member nation bond yields. The future of
the monetary union in Europe is being
questioned across the continent. Grand bailouts are urgently
needed for at least 5 or 6 nations in Europe
that will probably soon default eventually anyway. The political
will for continued bailouts is rapidly vaporizing in Central
Europe, inviting a disaster. Chaos is likely to outpace the
progress through negotiation and consensus, the markets moving
faster than politicians. Most major European banks are heavily
exposed to European sovereign debt, complicated by high leverage. When Greece defaults, and the bailout need is passed
to Italy and Spain, several major European
banks will fall in rapid succession. These banks, like their
American counterparts, operate balance sheets marked at fictional
high values that conceal their insolvency. Expect the
next events to serve as thee important tipping point that
sets off financial panic around the world. Even with a string
of outsized bailouts, havoc will hit the big Western banks,
extending to London and New York. The resulting recession will be painful, especially since
the West never exited the last recession.

The following quotes are actually quite shocking. They are
not in the news at all. They come from disparate important
corners of Europe. These people openly
admit that the financial system is on its deathbed, fully
dysfunctional and broken. They realize the financial system
in Europe is doomed.

1)German
Chancellor Angela Merkel: "The current crisis facing
the Euro is the biggest test Europe has faced for decades,
even since the Treaty of Rome
was signed in 1957. If the Euro fails, then Europe
fails. The Euro is in danger. If we do not deal with this
danger, then the consequences for us in Europe
are incalculable."

2)EU
President Herman Van Rompuy: "The
Euro has never had the infrastructure that it requires. We
are in a survival crisis. We all have to work together in
order to survive with the EuroZone,
because if we do not survive with the EuroZone, we will not survive with the European Union. This
crisis in the EuroZone will strengthen
European integration. That is my firm belief."

3)Former
German Chancellor Gerhard Schroeder: "The current
crisis makes it relentlessly clear that we cannot have a
common currency zone without a common fiscal, economic, and
social policy."

4)German
President Christian Wulff: "I
regard the huge buy-up of bonds of individual states by the EuroCB as legally and politically questionable. Article 123
of the Treaty on the EU workings prohibits the ECB from directly
purchasing debt instruments, in order to safeguard the central
bank's independence."

5)Deutsche
Bank CEO Josef Ackerman: "It is an open secret that
numerous European banks would not survive having to revalue
sovereign debt held on the banking book at market levels.
All this reminds one of the autumn of 2008."

6)Bank
of England Governor Mervyn King: "Dealing
with a banking crisis was difficult enough, but at least
there were public sector balance sheets on to which the problems
could be moved. Once you move into sovereign debt, there
is no answer. There is no backstop."

7)Intl
Monetary Fund Chief Christine Lagarde: "Developments
this summer have indicated we are in a dangerous new phase.
There has been a clear crisis of confidence that has seriously
aggravated the situation. Measures need to be taken to ensure
that this vicious circle is broken."

8)Prince
Hermann Otto zuSolms-Hohensolms-Lich (Bundestag Deputy President): "We
must consider whether it would not be better for the currency
union and for Greece itself to go for debt restructuring and
an exit from the Euro."

9)Polish
finance ministerJacekRostowski: "European elites, including German elites,
must decide if they want the Euro to survive, even at a high
price, or not. If not, we should prepare for a controlled
dismantling of the currency zone."

10)George Soros: "We
are on the verge of an economic collapse which starts,
let's say, in Greece. The financial system remains extremely
vulnerable."

11)StephaneDeo, Paul Donovan, and
Larry Hatheway of UBS: "Under
the current structure and with the current membership, the
Euro does not work. Either the current structure will have
to change, or the current membership will have to change.
Member states would be economically better off if they had
never joined. European monetary union was generally mis-sold to the population of the Europe." (bullshxx,
it was forced)

12)Alastair Newton, strategist
for Nomura Securities: "We believe that we are just
about to enter a critical period for the EuroZone. The threat of some sort of break-up between now
and yearend is greater than it has been at any time since
the start of the crisis."

13)Professor GiacomoVaciago (Catholic University, Milan Italy): "It is clear that the Euro has
virtually failed over the last ten years, even if you are
not supposed to say that."

A desperation is clear and palpable
to save the Euro currency and the European Union. The
overwhelming consensus among the political and financial
elite in Europe is that increased European integration in Europe
is the answer, a danger signal. The original designers
who forced the common Euro against the people's will have
a plan for more integration, less member nation independence,
more continental regulatory authority, and more federal rules.
Watch for a united Gestapo security force. The desire is
for an overarching government body atop the European Parliament,
which has become a laughing stock entity of babbling demagogues.
They strive to form the United States of Europe. First comes the shattered European banks, an extension of the crumbling
sovereign debt. Watch for integration sold by authorities
in Europe as the solution to the crisis,
again without popular support. The people of Europe are opposed to deeper economic and political integration. For
example, 76% of Germans indicate little or no faith in the
Euro currency. A recent poll found that German voters are
against the introduction of continental Eurobonds by a 5
to 1 margin. What remains is whether a major crisis induces
the people of Europe to comply like
sheep to the supra-national plan. They will most assuredly
be terrorized with street violence, wrecked workplaces, lost
income, cash & supply shortages, and ruined life savings.
See the Before It's News article (CLICK HERE).
Also, see the description of a perfect storm from the same
journal (CLICK HERE).
It will be very interesting to see if the Southern European
nations break off from the common Euro and form their own
second tier union. Currency devaluation would be permitted
for stimulus, but at a cost of sudden price inflation. Europe has never united in its history without the conflagration of
war. Integration might be acceded to avoid the ravage of
war.

◄$$$ EUROPEAN SOVEREIGN NATION DEBTS ARE MUCH GREATER
THAN THEIR CENTRAL BANK HOLDINGS, BY A FACTOR OF 10 OR 20
TO ONE. THE GOLD ASSETS ARE SUBSTANTIAL, AND TO DATE HAVE
NOT SEEN SOLD AND LIQUIDATED. A SIDE POINT, IT IS DOUBTFUL
THAT THE NATIONS OWN THEIR CENTRAL BANK ASSETS. $$$

Simply stated, Gold sales would not solve the vast European debt
troubles, no more than they would the USGovt debt troubles.
Two important points must be made. The Gold assets are
greatly exaggerated after years of leased sales, and the
nations do not own or have claims on the central bank assets.
The deeply indebted nations of Southern
Europe are under pressure from their richer creditor neighboring
nations to the North to sort out their finances. In no
way will they be able to sell off some treasury assets
and erase the debts. During all the wrangling over budgets,
the austerity spending cuts, the asset sales, the domestic
aid to banks, the PIIGS nations have not yet sold any
Gold reserves to offset, reduce, or service their debt.
Meanwhile though, the Gold price has risen to record highs,
touching $1900 per ounce. Some lame defense came from Natalie Dempster,
director of government affairs at the World Gold Council.
She said, "Foreign exchange reserves are held and
managed by central banks, not by governments. FOREX
reserves are set aside for specific purposes, such as defense
of currency, payment of external debt obligations, and
payment of imports. In the past you could have had
incidences where governments might try to over-stimulate
their economies by running exceptionally loose monetary
policy before an election. That is a reason why it is critical,
in an advanced economy, that central banks are independent." What
a crock!! They print money, cover toxic bonds at lofty
values, and offset $trillions in cozy central bank loans
instead, an exercise of their independence. They also organize
money laundering.

Despite a record high price, the Gold market is overwhelmed
by the enormous magnitude of European debts. Some details. Over 750 tons of gold currently sit in the central
bank vaults of Portugal, Greece,
and Spain. Extend to the full
PIIGS pen. Among the nations of Portugal, Ireland, Italy, Greece,
and Spain,
they hold 3233 tonnes of Gold,
worth some EUR 132 billion (=US$190 billion). That sum equals
73% of the 2010 annual supply of gold bullion from global
mining operations and sales of scrap. Contrast to debt levels. The
combined outstanding PIIGS public debt is around EUR 3.289
trillion, according to the IMF. The complete sale of
Portuguese central bank Gold, all 382.5 tons of it, would
only raise some EUR 14.9 billion, under 20% of just one recent
EU bailout package. Italy is the largest gold reserve
holder among the PIIGS nations, and
the fourth largest sovereign holder of gold bullion. Its
2450 tons are worth EUR 95 billion at current prices. Contrast
that to its national debt in excess of US$2.5 trillion, not
even 5% coverage. The extent of the debt burden is so
great that in no way would official Gold sales offer a solution.
Sales would only highlight the grotesque insolvency of nations
and their big banks from the publicity and questions of motive.
As asterisk, the USGovt owns no Gold at all, its official
statement a big fat lie that lists Deep Storage Gold, nothing
more than mountain ore bodies. The entire West has borrowed
a higher standard of living, the debt for which is due and unpayable.

◄$$$ THE EURO CENTRAL BANK INCREASED ITS P.I.I.G.S.
BOND PURCHASES, AS LAST RESORT BUYER. NOBODY WANTS THEM,
NOT THE MARKET, NOT THE BANKS. WHILE CLAIMING PRUDENCE, THEIR
BALANCE HAS TURNED ROTTEN AND TOXIC. A STRANGE DEVELOPMENT
HAS COME. EURO-CB LENDING HAS DRIED UP, BUT DEPOSITS SOAR.
THE EUROPEAN BANKING SYSTEM IS SEIZING UP, FROM THE INTERNAL
CHANNELS. INTER-BANKING LENDING HAS HALTED, FROM SUSPICION
OF BOND QUALITY AND DISTRUST, JUST LIKE IN THE UNITED STATES
IN SUMMER 2008. $$$

So the Euro Central Bank boasts they are not the USFed,
meaning not as reckless. The Jackass tends to disagree,
since the EuroCB has bought every conceivable worthless sovereign bond
from Southern Europe, and has tipped
off their next interest rate cuts. The next QE is by the
ECB, as part of the what the Hat Trick Letter has been describing as Global
QE. It has arrived, but without fanfare or recognition, but
in clear terms. While some speculated the ECB debt monetization
of insolvent PIIGS debt would range between EUR 10 and 15
billion, the next round was specified as EUR 6.7 billion,
as another EUR 1.3 billion in short-term assets mature. However,
the ECB has been very busy since early August. The new purchase
follows the EUR 22 billion and EUR14.3 billion in the previous
two weeks. All tolled, their total debt monetization facility
has gobbled up EUR 120.3 billion in toxic bonds. Money
is draining from the system, since whatever the EuroCB purchases,
the former bank owners cannot use as collateral in loans.
In making the announcement, helmsman Trichet at the toxic paper dump boasted that their balance
sheet was not as large as the USFed or
Bank of England. They are moving in the same direction in
the toxic field, to be sure. It is all ruinous central planning.
As reliable Tyler Durden stated, "Contrary to what
self-aggrandizing economist PhDs claim, somehow the ECB did
not refute the fact that there is central bank risk. Yes,
even with all that fiat printing capacity." Notice
the skyrocketing in toxic asset purchases since August. See
the Zero Hedge article (CLICK HERE).

The European banking system is showing deep distress, evident
in the EuroCB balance sheet data.
As inter-bank lending has slowed to a trickle, the ECB loans
have virtually halted also. But bank deposits held at
the ECB have soared 7-fold. Bank deposits held at the central
bank have risen from EUR 17.2 billion to EUR 121 billion since
the early summer. Money held and sequestered with the
central bank is not put to work in creating capital formation
or promoting business expansion. Just like with the USFed,
the Excess Reserves remove and deny lending capital, same
in Europe. Just like with the US banking
system, inter-bank lending was suspicious in 2008 as banks
did not trust the mortgage bonds from subprime and higher
rated bonds. Distrust within banks is a hallmark signal of
seizures within the system. The European banks are less willing
to allocate excess capital, putting it in the safety of the
European money printing Politburo. They repeat the US seizure pathway. Consider the ECB data on
SMP usage, the secondary debt purchases, which has risen
sharply in recent weeks. See the Zero Hedge article (CLICK HERE).

◄$$$ FINLAND HAS DEMANDED COLLATERAL
AGAINST GREEK GOVT BONDS. GREAT DISRUPTION TO THE ENDLESS
BAILOUTS HAS COME FROM A RESPONSIBLE CORNER, FINLAND.
WHAT INNOVATION TO REQUIRE SOME COLLATERAL!! IT HAS CAUSED
PROBLEMS WITH THE MINDLESS BAILOUTS. OTHER NATIONS SEE THE
WISDOM, WHILE THE COMMISIONERS FAVOR ENDLESS BANK AID, LIKE
IN THE UNITED STATES. $$$

Finland has some clout. They are not a deficit
nation. Their opinions are listened to. The Finnish Govt has
put its foot down and made tough demands. They will not agree
to further Greek Govt debt bailouts
without collateral placed formally in linkage. The demand
has taken the European leaders off guard. If they must reject
the demand, the retaliation in Helsinki
would be quick. A new government coalition would put the
Euro-Skeptics in power, and nix all future bailout proposals.
The hostile opposition party in Finland has opposed all bailouts
as foolhardy and lunatic. Luxembourg Prime Minister Jean-Claude Juncker,
who also chairs the EU finance meetings, has pursued mediation
but criticizes the call for collateral. He openly expressed
dislike for the collateral mechanism and bilateral arrangements
(Finland versus Greece apart
from EU, ECB, IMF). The Austrian
Finance Minister Maria Fekter suggested
a EuroZone summit of finance ministers,
as she is deeply dissatisfied with current procedures and
participants. A ripple effect occurred within both Austria and
the Netherlands,
after they demanded similar collateral treatment. At
risk is the entire second rescue package for Greece by
EU nations. Finland stuck
to its plan rigidly, even fighting off criticism by inviting
other nations to make similar demands. The European Commission
has publicly expressed disfavor for what they call excessive
collateralization in the Greek bailout. They see no need
to limit big bank bond redemption, like in the United States. They are devoted
to the bankers. It is ironic that Germany holds
the power, provides the funding, yet tiny Finlandkiboshes the
bailout process. The event highlights how national politics
is increasingly at odds with efforts to forge European unity, The
comprehensive response to the debt crisis has been complicated.
See the Bloomberg article (CLICK HERE).

◄$$$ THE MOST HIDDEN STORY IN EUROPE, APART FROM THE
DEEP FRICTION BETWEEN THE GERMAN BANKERS AND THE EURO CENTRAL
BANK, IS THAT THE THE INTL MONETARY
FUND IS OUT OF FUNDS. IT HAS A PLAN FOR REPLENISHMENT, BUT
THE MOST STRAINED NATIONS ARE ASKED TO PONY UP 10 TO 20 TIMES
AS MUCH AS PREVIOUSLY. CHINA GOT OFF EASY, WHEREAS
IN THE PAST THEY HAVE MADE SIZEABLE CONTRIBUTIONS. WESTERN
BANKER POWER IS BEING PUT TO THE TEST. $$$

The Intl Monetary Fund has been in the news this spring
with a sexual assault story. That enabled its chief to be
replaced by Christine Lagarde conveniently.
The IMF is back in the news, this time to fund its depleted
coffers. Back in April 2010, the IMF announced that it
was expanding its New Arrangement to Borrow (NAB) multilateral
facility from its existing $50 billion to $550 billion, an
11-fold increase. But the funds have not arrived. That
translated then to SDR333.5 billion, the Special Drawing
Rights comprised of a major currency basket. The deep distress
of the PIIGS sovereign debt followed the IMF appeal last
year. The bailouts, primarily to Greece,
were committed despite the total lack of effectiveness. That
is, unless you are a banker and saw your toxic bonds redeemed,
just like in the United States with TARP Fund
devices. Something big was coming 18 months ago, and something
big is still coming in the next few months. According to
Dow Jones news service, the Intl Monetary Fund will likely
furnish a $580 billion resource pool in coming weeks to ensure
the next sovereign debt bailouts. The pool of supplementary
resources is expected to be activated when needed to forestall
or cope with imminent threats to the international monetary
system. So one can conclude that a crisis is set to erupt
and grand funding requirements will hit.

The IMF met on September 9th to hammer out its tin cup needs
when it goes begging. It must approve re-activation of the
resource pool if the fund is to continue tapping it beyond
September. It claims a large majority of the board members
are in favor of re-activating the NAB facility. The crisis
is entering a dangerous new phase as the risk of Greece defaulting
overflows while Italy and Spain have
come under extreme scrutiny over sovereign debt. The pool
can only be activated by the board after the IMF managing
director makes a special request. So far, the IMF has already
allocated nearly $7 billion from the formal arrangement.
Currently only $331 billion is currently available for use.
Based on the nearly $400 billion the fund can commit to within
the next year without the special kitty, the IMF would only
have around $60 billion on hand for special loans. The special
resource base, funded through bilateral loans from countries
such as the United States and China,
was designed as a temporary measure. It is expected to be
replaced by an agreement late last year by the IMF board
of directors to increase quotas of donations by each member
nation.

The board of IMF governors agreed in December to roughly
double quotas from around $375 billion to around $750 billion. But
out of the 187 member countries, only 17 have legally accepted
the increase, including Japan, the UK,
and South
Korea, by Parliamentary action. Most
of the countries with the biggest quotas, such as the US, China, and Germany, have not yet completed the formal legal
approval process to deliver the funds within their government
bodies. None of the biggest IMF contributors have ratified
the formal quota increase. Tyler Durden concluded. "The US will
be stuck in legal limbo when Europe pulls a Greece,
collects American cash, and then finds it has no collateral
to pay back with. There is little we can add here that
was not said during one of the two prior massive IMF intervention
attempts, both of which predicted a huge global shake up
within months. Which is why we will end this post with
the same words we ended the previous iteration in the IMF
global rescue series: US taxpayers: our condolences." See
the Zero Hedge article (CLICK HERE).

Colleague Craig McC in California
pitched in. He wrote, "While the G7 and the IMF are
flitting about this weekend trying to save the banksters, buried in the linked ZH article is the fact that
most of the member countries have not secured Congressional
or Parliamentary approval for their December 2010 pledges.
So, the ability of the IMF to act on any bailouts seems to
be one of BIG HAT & NO CATTLE. Also, an interesting reader
comment pointed out that the IMF has an alarmingly high
burn rate of over $650 billion per year." For
an important fund with global reach, their ambitious (and
destructive) lending plans seem to far exceed their available
funds. Regardless, that is a huge burn rate, put at risk
by lack of funding. The prestige, power, and influence
of the Western bankers might be put to the test, the test
being their continued power.

◄$$$ THE USGOVT WILL CHANGE COURSE AND TAKE THE PATH
TO HIGHER DEFICITS. THE EXPANDING AUSTERITY SPENDING PLANS
ADOPTED WIDELY BY NATIONS WITHOUT A PRINTING PRESS ASSURE
A WESTERN RECESSION THAT WILL AFFECT CHINA.
THE DEFICITS WILL GROW WITH OR WITHOUT SPENDING CUTS, THE
RIPPLES COMING FROM THE PUBLIC OR THE PRIVATE SECTOR. NO
FIX IS WITHIN REACH. $$$

Portugal plans the biggest fiscal spending cuts
in 50 years. Do not be impressed, except that the momentum
of growth without mental thought might be curtailed. The
proposed cut in spending is very minor, a plan that would
reduce the budget by a mere 0.7% of annual economic output
(GDP) over three years. It illustrates how even moderate
factions are politically unable to make significant reductions
in spending. The leaders hail the cuts as unprecedented,
which they are. They simply mean little. The Lisbon
government intends to meet its budget deficit targets, as
part of the agreements made when Portugal scored
a bailout in May. The country continues to receive a total
of EUR 78 billion (=US$112 billion) from the European Union
and Intl Monetary Fund. See the BBC article (CLICK HERE).

The fiscal spending cuts bring to bear an important dampening
factor. With so many formal cutbacks in spending, in no
way can a Western recession be avoided, especially in the
very nations beset by problems that urge bailouts. The
public sector has born a disproportionate load in supporting
jobs and economic growth, a queer noxious imbalance to be
sure. As cutbacks are enforced, job cuts are quickly felt
with much resentment. The situation is not fixable in many
weaker nations. Neither is the USGovt is ready yet for spending
cuts. They have another grand round of economic stimulus
coming. They will talk about prudence and sensible decisions,
but the ugly face of recession is in the room. Both spending
cuts and tax hikes drag the economies down. A $2 trillion
deficit awaits the USGovt in the next fiscal year, as a recession
takes a giant bite out of revenues, and the cost of stimulus
is recorded. The paradox noted is that deficits will
grow from fiscal cuts, causing a recession ripple effect
emanating from the public (govt)
sector, or deficits will grow from recession, causing a recession
ripple effect emanating from the private (business) sector.
The Austerity plans are all poison pills. The year 2012 is
certain to be tumultuous. This is much like a very long night
followed by the stench of a new dawn, with the fresh smell
of napalm and rotten flesh.

◄$$$ THE GREEK GOVT BOND YIELD HIT 88% IN DIRECT RESPONSE
TO SQUABBLES AND THREAT OF GERMAN FUNDING REFUSALS. DENIALS
ABOUND, BUT REALITY RULES. THE GREEK BOND MARKET IS A TOTAL
WRECK. A GREEK DEFAULT COMES. $$$

The Greek 1-year bond yield actually hit 88.48% in a
surge two weeks ago. The market response to the internal
discord was clear. Bond holders hastened further their
abandonment. Curiously, the clowns among banker helms were
silent. They prefer to recite mantras about unity, but
they are on orders from the supra-national masters to preserve
the union, to bail out the bank assets, to execute collateral
grabs, and to consolidate power during crisis. By wrecking
the government finances, they further their global plan.
The absent comments from Trichet, the EuroCB members, and EU commission was deafening. The implications
of the bond yield surge is simple. A debt default
is expected. The sovereign bond market is fast becoming
a joke. See the surge at the end of August extend into
September. If the default is ignored, it will not go away.
The incoming ECB president Mario Drahgi is
among the silent captains. A Greek bond yield of 100% would
make history. The mindlessness of the situation is evident
in the outpouring of calls for the Greek Govt to
cut back in spending much more. Doing so would slow the
economy further, lift deficits, and press greater need
for bigger bailouts. No solution exists except default,
which was forecasted over a year ago by the Jackass. See
the Global Economic Analysis article (CLICK HERE).

◄$$$ THE CDSWAP MARKET ASSIGNS A 98% LIKELIHOOD TO
A GREEK DEFAULT. THE ENTIRE EUROPEAN BANK SECTOR IS SEEING
A FAST RISING CDSWAP PRICE. THE FRENCH BANKS ARE EXPECTED
SOON TO BE DOWNGRADED IN A SWEEP. THEIR DEBT WAS DOWNGRADED,
AS IT HAPPENED ON WEDNESDAY. ALL SOUTHERN EUROPE IS UNDER EXTREME CONSTANT PRESSURE. BEWARE OF FRANCE,
THE PIGS LOOKALIKE. $$$

The market assessment on Greek Govt debt default has risen to 98% in the next five years,
a virtual certainty. The smart money is pricing in a near-term
default, expected to trigger a tumultuous response since
the big banks have exposure. Even small exposure will result
in a big effect, due to leverage and basic insolvency so
pervasive in the system. It will trigger a string of events. The
Credit Default Swap contract to insure Greek debt costs $5.8
million upfront and $100k annually to insure $10 million
of Greek debt for five years. The initial advance cost
used to be $5.5 million on September 9th, according to CMA.
The austerity measures put in place have worked exactly like
the poison pills described in the Hat Trick Letter. The
Greek Govt deficit has widened
22% in the first eight months. Its 2-year note yield
has climbed toward 70%, and its stock market is in constant
turmoil. Here is the calculation method. The default probability
for Greece is based on a standard pricing model that
assumes investors would recover 40% of the bond face value
upon a failure to meet its obligations. The latest recession
estimate is a 5% economic decline in 2011, as austerity measures
deepen a recession that has spanned three years. The contagion
is spreading across the continent and beyond. The CDSwap prices for European bank debt insurance have risen
to the highest levels yet, in response to reports that French
banks will be downgraded in a sweep. That would cause quite
the havoc. They have heavy exposure to Greek bonds. The MarkitiTraxxSovX Western Europe Index
of CDSwaps on 15 governments soared
18 basis points to a record 354 last week. The MarkitiTraxx Financial Index linked to senior debt of 25 banks
and insurers increased 14 basis points to 3.14%. The subordinated
index jumped 15 to 5.50%, both the highest ever on the broad
financial index. Data is from JPMorgan sources.

Suki Mann from SocieteGenerale in London
wrote, "The contagion impact of a default will be
severe, because next in the firing line will be Italy, Spain,
and it will take in the whole of the European banking sector
too. This trio are already under intense pressure, but it will
get much worse." The other PIGS nations also fare
poorly on debt insurance, the most reliable signal for default
and failure. Balance sheet reports, stress tests, and formal
filings are loaded with deception and fabrications. Credit
Default Swaps on Portugal, Italy, and France surged
to records, according to CMA, which is owned by CME Group
and compiles prices quoted by dealers in the privately negotiated
market. The CDSwaps incorporate
widely understood factors off the balance sheet. Debt insurance
for Portugal jumped 79 basis points to 12.13%, for Italy it rose 40 basis
points to 5.03%, and for France was
up 11 bpts to 1.89%. Although the
French debt insurance is not as high, it is rising noticeably.
Then consider the banks. Credit Default Swaps on BNP Paribas, SocieteGenerale, and Credit Agricole,
the big three French banks, surged to record highs under
the cloud of imminent Moodys downgrades. CDSwaps on SocGen went 53 basis points higher to 4.43%, Credit Agricole increased 41 bpts to 3.31%,
and BNP Paribas rose 31 bpts to
3.06%, according to CMA. The downgrades are expected when
the review period concludes, which is soon. The high risk
of default extends across European corporations, not just
banks. The cost of insuring corporate debt rose to the highest
levels in almost three years, according to JPMorgan data.
The MarkitiTraxx Europe Index of 125
companies with investment grade ratings was up 6.5 basis
points to 1.985% after rising to as high as 2.04% recently.
See the Bloomberg article (CLICK HERE).

It happened on cue, as the downgrade came on Wednesday September
14th. The ratings agency Moodys cut by one notch in a debt downgrade of SocieteGenerale and Credit Agricole, due to Greek debt exposure. They left BNP Paribas
unchanged but on watch, citing their greater profitability
and capital base as capable to serve as adequate cushion
to soften the damage. France's biggest bank announced a plan to sell
EUR 70 billion worth of assets to help ease investor fears
about leverage and funded losses that have struck its two
main rivals. Alternative plans for floating the controversial EuroZone Bonds
were previewed in other disclosures, despite how no nations
wants them. See the Yahoo Finance article (CLICK HERE).

◄$$$ ITALY CONDUCTED A LOUSY DEBT
AUCTION IN LATE AUGUST. THE RESULTS ARE BAD ENOUGH TO PUSH
THE EURO CENTRAL BANK INTO FASTER BOND BAILOUTS. BOND MARKET
DETERIORATION PROCEEDS, WHILE THE ITALIAN GOVT BACKTRACKED
ON AUSTERITY MEASURES IN DEFIANCE. THE MAGIC 5% MARK ON BOND YIELDS HAS
BEEN PENETRATED IN ITALY, SIGNALING ALARMS. $$$

Many auctions have taken place. A few had an impact on policy
and perceptions. In late August, Italy conducted a bond auction
that went sour. The bond market reacted badly. The auctions
have been watched with greater scrutiny in recent weeks.
The Italian Govt conducted an auction of EUR 7.74 billion in total, of
3-year and 10-year maturity. The significance is enhanced
by the rule that the EuroCB is forbidden to purchase bonds at primary issuance.
Signs of deterioration were watched, in the wake of EUR 40
billion of bonds lapped up by the EuroCB in
August up to that point. The yields rose 11
basis points in the Italian Bund spread, and the Bid/Cover
ratio was horrible at 1.32 and 1.27 respectively on the 3
and 10 year maturities. The 5% yield was breached, a notable
event for Italy. Tyler Durden put it
well. "The concern is that even with the ECB buying
debt in the secondary market (effectively monetizing), the
tail is unable to wag the dog strongly enough. If the European
Financial Stability Fund is not activated soon enough, and
expanded significantly, we expect to see the market test
the ECB once again, and SMP purchases to soar very soon." See
the Zero Hedge articles (CLICK HERE and HERE).
Some typical Italian defiance followed in ensuing days. The
obstinate Parliament reversed decisions toward greater austerity,
probably knowing of their bitter poison pill effect. They
have removed tax hike proposals on high wage earners. Instead,
tax cheats will be pursued, sure to go nowhere but it makes
good press.

Last week, another important Italian Govt bond
auction took place. Italy sold
EUR 3.9 billion from a new benchmark 5-year bond at 5.6%
on average yield. The yield was above the recognized alarm
level of 5% again. Compare to 4.93% during an auction
of similar securities that were sold on July 14th. Demand
was a very low 1.28 times the amount on offer, the Bid/Cover
ratio, compared with 1.93 times at the previous sale. So
participation is down significantly, as trust fades. The
yield on Italian Govt 10-year bonds rose to 5.73% after the auction, pushing
the Bund spread up 17 bpts to 400
basis points.

◄$$$ ENTER THE CHINA CARD. THE
DEEP POCKETS OF CHINA HAVE
BEEN CALLED UPON AS LENDER TO ITALY, A NATION MOVING TOWARD CRISIS. CHINA WISHES
TO PROTECT ITS TRADE CUSTOMER, BUT OTHER ASPIRATIONS ARE
RELEVANT. THE CHINESE CONTINUE THEIR STRATEGY OF CAPTURING EUROPE,
THE GREAT PRIZE. AN EXPORT MARKET MUST BE ASSURED. $$$

China owns $3.2 trillion in FOREX reserves. The
Chinese Govt has entered summit talks with the Italian Govt for coverage of some yawning sovereign debt to be financed
and rolled over. Finance Minister GiulioTremonti met
with Chinese officials in Rome early in September, talks that continue and
expand. The Chinese Foreign Ministry assured that Europe is one of their main investment destinations. Italy joins Spain, Greece, Portugal, and even investment bank Morgan Stanley
among distressed borrowers that have appealed to China for investment stakes
since the 2007, when the global financial crisis took root. China has a stated intention
to help stabilize the EuroZone and
its economy. It is a highly important trade partner. The
image of China coming to the aid of Europe
surely enhances the Asian emerging giant. A desire exists
to avoid a domino effect that causes much further damage
to the Western economies. Italy is fulfilling
a minimal role in keeping their deficit in check. The Govt led by Prime Minister Silvio Berlusconi
hurried passage of a EUR 54 billion austerity package to
convince the European Central Bank to aid in their debt
purchase. The magnitude of Italian Govt debt
is formidable. At EUR 1.9 trillion (=US$2.5 trillion) in
size, it amounts to more than Spain, Greece, Ireland and Portugal combined. The
vulnerability to higher borrowing costs is tremendous.
The Euro Central Bank will probably in the end act as main
buyers of Italian Govt bonds, but the Chinese are involved in the process for
leverage. See the Bloomberg article (CLICK HERE).

The Chinese motives are many, and to a great extent hidden
from view. China is not a charitable organization. They
wish to buy industries, and Italy has some key corporations. China wishes to assure a lock on the entire retail
chain across Europe. They are not so
interested in preventing contagion as the Western press claims. They
wish to capture economies, much more interested in hard asset
conversion of their toxic USTBond assets
in store. They are not so much supporting the European
Union as capturing it.

GERMANY AS
GATEKEEPER

◄$$$ GERMANY SERVES AS THE FERRYMAN
TO HADES, THE KEYHOLDER AT THE PRISON, THE GATEKEEPER TO
THE NEXT DARK WRETCHED
PLACE. THE GERMAN GOVT IS READYING A PLAN TO AID GERMAN BANKS
WHEN THE GREEK GOVT DEBT MOST ASSUREDLY DEFAULTS. THE EVENT
IS IMMINENT. THE MOVEMENT TO AID BANKS IS CONFIRMATION OF
THEIR INSOLVENCY, AND PROOF OF THE STRESS TEST BEING A SHAM,
JUST LIKE IN THE UNITED STATES. THE BANKERS BUY TIME, BUT
IT IS FUTILE. $$$

Germany is
making ready its plan to provide huge formal aid to its big
banks if and when Greece defaults
on debt. In the likely event that Greece fails to meet the terms of its aid package
and defaults, the German Govt is
shaping a grand finance plan to shore up banks. The emergency
plan involves measures to help banks and bond insurers that
must absorb a possible 50% loss on their Greek bonds if
the next tranche of Greek bailout funds is withheld, according
to anonymous sources from the actual private deliberations.
The urgent requirement is to recapitalize the banks, even
without stating so. Some call this Plan B which underscores
the German concerns. German lawmakers have ramped up criticism
of Greece, threatening to withhold aid unless the
nation of antiquity meets the terms of its austerity package,
after an international mission to Athens
returned, only to suspend its report on the wrecked country's
progress. German Finance Minister Wolfgang Schaeuble summed
it up to Parliament, saying "Greece is on a knife's edge.
[If the Athens government cannot meet
the aid terms,] it is up to Greece to figure out how to get financing without EuroZone help." The
situation is dire. Germany expects
a default. The German Govt is awaiting
the details on the Greek progress report. Last week Credit
Default Swaps insuring Greek sovereign bonds jumped 212 basis
points to a record 32.38%, according to CMA. The 5-year contracts
signals a 92% probability the country will not meet
its debt commitments. See the Bloomberg article (CLICK HERE).

Greece has failed to place their short-term bill
rollover as required. Thus witness a declaration by the market
that even for short-term paper, the bond market has lost
confidence in Greece. The other hardly
hidden signal is the rapid decline in the Germany DAX stock
market index. The DAX is down 30% since late July in a
shocker dive. The debt default from the South is being anticipated,
with dire impact. Karl Denninger summarized. The conclusion
is in three parts. Coincident with the news hitting the wires
was a massive flow of money into the Japanese Yen and out
of the Euro currency, a monstrous safety trade of capital
flight. Imagine hot money moving out of Europe.
See the Market Ticker article (CLICK HERE).

1)A
Greek default is considered credible by Germany as they are taking official actions related
to that possibility. No more denials.

2)German
banks (as well as French banks and other big banks) are insolvent,
carrying these bonds at well above their actual value in
the marketplace. To carry them at proper loss values (quoted
as 50%) means an instant need to recapitalize the banks. Regard
the domestic bailout plan in Germany as
an official statement of proof that the banks are lying about
their balance sheets and are in fact insolvent.

3)Recall
that stress tests were conducted in Europe.
The public was reassured recently about bank conditions,
with no need for capital. They will indeed require massive
capital.

◄$$$ G7 FINANCE MINISTERS PREPARE FOR THE STRING OF
DEBT DEFAULTS IN SOVEREIGN DEBT FROM SOUTHERN EUROPE. THE G7 SAYS CENTRAL BANKS ARE READY TO PROVIDE LIQUIDITY
AS REQUIRED. THEY ARE IN FULL PANIC MODE. $$$

The panic stricken Group of Seven is the club designed for
the prevention of harm to the Status Quo of Anglo banker
power. Its formal statement was made quickly and without
dubious language, a confirmation of meltdown and urgency.
They almost never offer plain statements in clear language.
They will support the big Western banks, and claim to tackle
the economic slowdown. Here are the best meaty portions of
their communique released.

"We met at a time of new challenges to global economic
recovery, with significant challenges to growth, fiscal
deficits, and sovereign debt, stemming from past accumulated
imbalances. This is reflected in heightened tensions in
financial markets. There are now clear signs of a slowdown
in global growth. We are committed to a strong and coordinated
international response to these challenges. We are taking
strong actions to maintain financial stability, restore
confidence and support growth. In the United
States, President Obama has put forward
a significant package to strengthen growth and employment.
Euro area countries are implementing the decisions taken
on July 21 to address financial tensions, notably through
the flexibilization of the European
Financial Stability Fund. Japan is
implementing substantial fiscal measures for reconstruction
from the earthquake while ensuring the commitment to medium-term
fiscal consolidation. Fiscal policy faces a delicate balancing
act. Given the still fragile nature of the recovery, we
must tread the difficult path of achieving fiscal adjustment
plans while supporting economic activity, taking into account
different national circumstances. Monetary policies
will maintain price stability and continue to support economic
recovery. Central Banks stand ready to provide liquidity
to banks as required. We will take all necessary actions
to ensure the resilience of banking systems and financial
markets. In this context we reaffirm our commitment to
implement fully Basel III. We will consult closely in regard
to actions in exchange markets and will cooperate as appropriate.
We look forward to working with our colleagues in the [expanded]
G-20 and the IMF in the coming weeks to rebalance demand
and strengthen global growth. As previously agreed, structural
reforms will make an important contribution in this regard." What
they call support for growth and stability is actually
bond redemption for bankers on their toxic asset holdings.
Notice the genuflection before the Basel fortress, whose directives on bank reserve management have invited
open hostility from JPMorgan CEO Jamie Dimon. See the Zero Hedge article (CLICK HERE).

◄$$$ A RIFT GROWS BETWEEN GERMANY AND SWITZERLAND. AT LEAST A MAJOR
SWISS BANK OPENLY DISCUSSES GERMANY LEAVING
THE EURO MONETARY UNION, AND REVERT
TO THE STRONG D-MARK CURRENCY. THE SWISS ARE INDIRECTLY ADMITTING
THAT A GERMAN DEPARTURE COULD MEAN A SUDDEN DEATH EVENT FOR
TWO MAJOR SWISS BANKS. $$$

The Union Bank of Switzerland has quantified
the impact cost to one or more countries leaving the Euro
Monetary Union. They focus on Germany.
They wrote, "Were a stronger country such as Germany to
leave the Euro, the consequences would include corporate
default, recapitalization of the banking system, and collapse
of international trade. If Germany were to leave, we believe the cost to
be around EUR 6000 to EUR 8000 for every German adult and
child in the first year, and a range of EUR 3500 to EUR 4500
per person per year thereafter. That is the equivalent of
20% to 25% of GDP in the first year. The economic cost is,
in many ways, the least of the concerns investors should
have about a break-up. Fragmentation of the Euro Monetary Union
would incur political costs. European soft power influence
internationally would cease, as the concept of 'Europe'
as an integrated polity becomes meaningless. It is also worth
observing that almost no modern fiat currency monetary
unions have broken up without some form of authoritarian
or military government, or civil war."

The UBS research team avoids the topic, but widely believed
is that the banking impact on sovereign debt default and
non-Euro currency devaluation within the EuroZone would
kill both UBS and Credit Suisse. These are the two flagship
giant Swiss banks. They are already under siege for toxic
bonds, ruined Eastern Europe mortgages,
and the backfire of gold leases. They contend with hundreds
of $million lawsuits over failure to deliver gold from allocated
accounts. They do not mention them, but my source stresses
these points, and has stressed them for a few months. The
report cited the popular Mutual Assured Destruction rabble
made popular by Hank Paulson, the last US Treasury Secretary.
Everybody is ruined unless banks are given welfare, the usual klapptrapp.
Translation is easy. Save the big banks or lose your children
in war. The safest conclusion taken from the UBS report is
that Germany is actively considering abandoning the
Euro currency and that Swiss bankers are
worried sick. See the Zero Hedge article (CLICK HERE).
Catherine Austin Fitts pitched in with a quick comment. She
said, "Nonsense. It is essential to terrify others
if gaining control is wanted. This is all part of the fraudulent
inducement trap. This is not a debt crisis, but rather a
re-engineering. It is a phony crisis designed to centralize
and shrink the economy." Although surely not phony
as a crisis, it is indeed a crisis that is orchestrated.
The banksters must be getting very scared. For a breezy survey
of the German landscape, see the UK Telegraph article entitled "German
Endgame for EMU Draws Ever Nearer" by Evans-Pritchard
(CLICK HERE).

◄$$$ A KEY DEPARTURE OCCURRED AT THE EURO CENTRAL
BANK BRAIN TRUST. THE GERMAN ECONOMIST WANTS TO MAKE SOME
DISTANCE FROM RUINOUS POLICY, AND RETURN TO THE GERMAN FOLD.
A MAJOR RIFT WITH STEADY DISSENSION CAN BE INFERRED WITHIN
THE EURO CENTRAL BANK. $$$

European Central Bank chief economist Juergen Stark
announced a surprise resignation from the divided central
bank. He cited personal reasons, and will remain until a
successor is found.

Internal conflict among the ECB officials over its controversial
bond buying program is cited as the cause of Stark's exit,
and another key exit. The EuroCB has a ruined balance sheet, smaller than the USFed, but loaded with toxic bonds purchased at generous
prices in bank redemptions. In February Axel Weber quit
the ECB over the central bank's bond buying policy. The
ECB president, Jean-Claude Trichet is
due to retire at the end of October. Manfred Neumann is
Economics professor at Bonn University. He said, "This is remarkable. Stark held the same
view of the bond buying as Axel Weber and the current Bundesbank president.
This is a sign of huge problems within the central bank.
The Germans clearly have a problem with the direction of
the ECB." See the BBC article (CLICK HERE).

◄$$$ OBSTACLES FROM THE GERMAN HIGH COURT DID NOT
ARRIVE. THEY PUNTED, IN A SHOW OF POLITICAL EXPEDIENCE. MANY
OBSERVERS EXPECTED A SOLID ROADBLOCK OF MASSIVE TREES TO
BE FELLED ON THE BAILOUT ROADWAY. THE COURT SUGGESTS MORE
PARTICIPATION IN DECISIONS BY THE GERMAN PARLIAMENT. WHAT
THE COURT DID ACCOMPLISH WAS TO RENDER UNCLEAR THE MECHANISM
FOR FUTURE BAILOUTS. $$$

The German High Court rejected the sovereign debt bailout
lawsuit challenges. Chaos has been averted, but political
wrangling is assured to continue. The Constitutional
Court rejected on September 7th a series of lawsuits aimed
at blocking German participation in bailout packages for Greece and other EuroZone countries. They urged that Parliament must have
a bigger voice in future rescues. The judges ruled that German
participation in European bailout funds has been conducted
properly, but future work will need to be more closely coordinated
with legislators. In other words, it was not legal, but maybe
the next deals can be made legal. This was a pure punt of
responsibility to sidestep being identified as those who
pulled the lever that broke the system wide open. The
hidden damage might be to the European Financial Stability
Fund, whose potential has been weakened. The big bailout
fund might not be easily replenished. The ruling confirms
the view that the German piecemeal approach on the debt crisis
is not likely to change. The next bailout will probably be
put before the German Parliament in a formal vote. Carte
blanche on deal making for Euro stabilization is not to be
tolerated further.The introduction
of common Euro area bonds has been rejected, a casualty,
seen as inviting unforeseeable burdens on the federal budget.The
continental bond is shaping up to become the next battleground. The
only certainty is the lack of clarity for rescue mechanism
on future bailouts. Uncertainty will remain high, along with
volatility. See the UK Telegraph article (CLICK HERE).

◄$$$ A GERMAN PLAN HAS GATHERED STEAM TO EXPEL DEBTOR
NATIONS. THE PROCEDURE MUST BE FORMALIZED. TOLERANCE FOR
LYING ON ECONOMIC CONDITIONS, BANK SOLVENCY, AND ABILITY
TO REPAY DEBT HAS WORN THIN TO THE BREAKING POINT. THEY WILL
BE THE VIOLATIONS FORMALIZED FOR EXPULSION. $$$

While the career of Angela Merkel fades into the vegetable
garden, a bankruptcy framework has been proposed. The
procedure is designed to boot out chronic EuroZone debtor
nations that have become a burden to the point of raising
systemic risk. The process seems to be to placate the
Finnish demands for collateral. Instead of outright collateral
placed before bond bailouts are granted, perhaps a procedure
can be hammered for applicant rejection instead. Several
explosive ideas are being proposed which not only reject
a common economic government for the EuroZone,
thereby slapping Sarkozy across
the face, but also to consider creating a bankruptcy procedure
to forcefully remove nations from the Euro Monetary Union
which do not comply with debt limits laid out in the infamous
Stability & Growth Pact, and the budget requirements
tied to bailouts. This is a march backward in time to
undo the bailout steps, principally the July 22nd Greek bailout.
In the weeds lie both Italy and France, exposed more with
each passing week. They are not bailout targets, but
rather wrecking balls to the EMU, the big banks, and political
organization. German opposition groups seek to create a framework
to deal with chronic liars of their economic condition and
budget effectiveness. See the Zero Hedge article (CLICK HERE).

◄$$$ TRICHET HAS FINALLY BEEN CONFRONTED WITH A D-MARK
CURRENCY RESTORATION. HE SHOWED CONTEMPT, SEEKING PRAISE
FOR HIS TENURE INSTEAD. THE OUTCOME OF HIS EIGHT YEARS IS
TOTAL RUIN OF EUROPE, IN A GLARING DISPLAY OF COMPETING CURRENCY WAR DESTRUCTION
TO ALL PARTIES. HIS ITALIAN SUCCESSOR IS FROM GOLDMAN SACHS,
A RIPE COMBINATION FOR EXTENDING THE BANK BAILOUTS FOR ITALIAN
GOVT BONDS. $$$

Gestures speak volumes. Indignant body language is evident.
Finally the topic of Germany reverting to the
historically strong Deutsche Mark currency has been raised
in the open, even tossed like cold water in Trichet's face. The
Euro Central Bank President Jean-Claude Trichet made
angry frustrated gestures during a news conference at the
headquarters in Frankfurt. The D-Mark
remains strong in the minds of Europeans, a currency that
never should have been discarded or replaced. But a supra-national
plan could not be blocked. The D-Mark was a casualty of banker
ambition. Germany, which had brought its Eastern brothers
into the fold a decade earlier, was compelled to finance
Southern Socialism with its bizarre mix of inefficiency,
lousy work ethic, preference for merriment, deep corruption,
and inability to collect taxes. Trichet will
step down from his throne, but amidst frustration and deep
friction marred by resignations and open battles with the Bundesbank.
His 8-year term ends October 31st, to be replaced by Mario Draghi of Italy, who carries the Goldman
Sachs pedigree. He should favor Italy in the next bailout chapters. Trichet lost
his composure with a reporter who asked whether Germany should
abandon the Euro and return to the D-Mark as the European
debt crisis continues without end. Instead, Trichet in
Orwellian style shot back, "I would like very much
to hear the congratulations for an institution which has
delivered price stability in Germany for
almost 13 years. It is not by chance we have delivered price
stability. We do our job, it is
not an easy job." What deception and folly.

The EuroZone Economy has worse
price inflation that the USEconomy, and its banks are on the verge of collapse, as not even
political stability is visible. The inflation praise
is off the mark, as cookies cost $4 in Spain,
and McDonalds hamburger combo
meals are $12 in Europe. Prices have risen enormously. Globalization has ripped industry
(small & large) and moved it to China. The EuroZone Economy
is subject to the swings in unstable currencies. The mammoth USDollar printing operation has put a cost strain on Europe at a time when their non-uniform sovereign bonds pull apart
and expose a fractured union financially. The Euro Central
Bank has attempted to separate from the reckless USFed policy but has exacerbated the EuroZone problems. The
rate hike earlier this year put extra strain on Southern
Europe, forcing mortgage rate hikes, more bank strain,
and inducing Germany to break off the
common Euro currency. Anyone who has traveled to Europe recently is well aware of a tremendous rise in all prices, but
that excludes the great majority of Americans, only 15%
of whom own a passport.

Trichet has acted as
chief defender to the Euro common currency and the union
itself. He has spent much of the last two years shuttling
back and forth between Frankfurt and
national capitals for private meetings with bankers and
politicians in a series of important but futile summits. Trichet is
responsible for two major monetary decisions. In 2009,
he followed the USFed and its
reckless decision to cut interest rates, moving toward
the 0% policy (ZIRP), exactly as the Jackass forecasted
at the time. He did so unwillingly. Then he hiked the ECB
interest rate several months ago in an attempt to put distance
between the central bank and the American destruction of
capital. Instead, Trichet and
the Euro Central Bank fell victim
to the Competing Currency War, a primary victim in a war
that destroys all nations, both allies to the ZIRP and
opponents whose currencies suffer from appreciation.Trichet presided over a EuroCB that
took the controversial unprecedented step of buying the
bonds of countries including Ireland, Spain, and Italy when their bond markets froze up. The purchases
were technically illegal. Some claim that grand move lowered
their bond yields into normalcy, but it wrecked the ECB
balance sheet laden with toxic PIIGS bonds. As the crisis
increased and banker in-fighting ensued, Trichet has criticized governments for not doing enough.

The litmus test still lies in Germany, where 37%
voted that the country would be
better off if it reintroduced the D-Mark, according to an Emnid survey
posted on August 18th. A similar 37% proportion said Germany is
better off with the Euro, while another 19% believe a return
to the D-Mark would change nothing. The EuroCB left
its benchmark interest rate unchanged at 1.5% last week. But
more importantly, Trichet signaled
an official rate cut with his language, a white flag of surrender
in the Competing Currency War. The Euro exchange rate
has come down hard since the policy statement. The higher
Euro currency has harmed German Economy led by exporters
for two years. There is no victory ever in such a fiat war
on money. It is clear who the fiat beauty queen is, GOLD
peering from the side of the stage.

USECONOMY RETREATS AGAIN

◄$$$ ALMOST NO CHANGE IS EVIDENT IN NEGATIVE EQUITY
HOMEOWNER STATISTICS. AN AMERICAN TRAGEDY CONTINUES UNABATED
WITHOUT SOLUTION. NO ATTEMPT AT RELIEF IS BEING MADE, SINCE
DOING SO WOULD TOPPLE THE ALREADY INSOLVENT BIG BANKS. BANKS
RECEIVE WELFARE, BUT THE PEOPLE NOTHING. NO RECOVERY IS REMOTELY
POSSIBLE IN THE USECONOMY UNTIL THE CONDITION IS REMEDIED.
$$$

CoreLogic released 2Q2011
data showing that 10.9 million homes, equal to 22.5% of
all residential properties, have a mortgage in negative
equity. The underwater figure is down from 22.7% in
the first quarter. An additional 2.4 million borrowers
had less than 5% equity, referred to as near-negative equity,
in the second quarter. This graph shows the distribution
of negative equity, a horrendous display. Notice the biggest
category is the worst category, over 25% underwater, a
glaring bar. These homeowner are at acute risk to lose their homes. Almost
10% of homeowners with mortgages have more than 25% negative
equity. Any trend down is due to homes lost in foreclosure,
no longer accounted for since no mortgage. So progress is non-existent, even though suggested
as apparent. See the Calculated Risk article (CLICK HERE).
Any giant national program to reduce home loan balances
would cost at least $2 trillion, debase the USDollar further,
and push the Gold price past the $2000 mark.

◄$$$ THE AUGUST JOBS REPORT PUKED. MORE USGOVT STIMULUS
WILL BE URGENTLY ENLISTED. NOTICE THE OFFICIAL JOBLESS RATE
FALLING SLIGHTLY BUT THE REALISTIC MEASURE RISING. PEOPLE
ARE FALLING OFF THE OFFICIAL COUNTS, THEIR BENEFITS EXHAUSTED
(SEEN AS PROGRESS). $$$

The USGovt non-farm payrolls report was miserable. It showed
exactly zero jobs produced on a net basis. The implication
of an exact zero figure screams of deception and faulty statistical
methods, since a convenient number. The Birth-Death Model,
that wondrous fudge tool, brought in 87 thousand mythical
jobs. So my conjecture is that the actual final count was
in the minus 80k to 90k range, a level that motivated a doctored
final figure of zero within the overall doctored procedures.
The B-D Model is designed to measure small business job creation,
a sector that is reeling from the lunatic ObamaCare regulations. The August U.6 unemployment rate notched higher to a seasonally-adjusted
16.2%, from 16.1% in July. It serves as the broadest
unemployment rate published by the Bureau of Labor Statistics.
Included are people clinging to the labor force at the margin,
even short-term discouraged workers and those employed part-time
since unable to find a full-time job. The Clinton Admin is
responsible for altering the jobless statistic, in order
to present a more favorable figure. They essentially killed
the discouraged workers in the statistical data crunch, who
had given up looking for a job.

Notice the official U.3 jobless rate (red) coming down slightly,
as does the broader U.6 (gray), but the most accurate comprehensive
SGS rate (blue) is rising. The Shadow Govt Statistics
folks count people who are unemployed, a simple concept not
muddied by politics, economics, or motive to deceive. The
SGS estimate puts back in the equation the long-term discouraged
workers, since part of the labor force. The estimated
SGS-Alternate Unemployment Measure notched higher to 22.8%
in August, up from 22.7% in July. Many workers are falling
in the cracks, with exhausted insurance benefits. The U.3
is nothing more than a state jobless insurance count. The
USGovt response to economic recession will be to abandon
budget cuts and austerity. With deeply embraced expedience,
they will blow forward with stimulus plans. If half the programs
make any sense, that would be a success. The plan will be
to build in stimulus in the short-term but budget cuts in
the long-term. The problem is that the forward projections
will be nonsense. Much larger USGovt deficits for year
2012 are assured, like night following day. Expect a whopping
$2 trillion official budget deficit next year. The impact
on the USDollar and Euro currencies
might be muted. But the impact on the Gold price will be
clear. The uniformly debased monetary system will send the
Gold price past the $2000 mark.

◄$$$ SENTIMENT LEADS CONSUMPTION. FURTHERMORE, SENTIMENT
HAS BEEN DOMINATED BY STOCK MARKET MOVEMENT, A RECENT SEVERE
DAMPER FROM THE RENEWED RASH OF WORRY. THE USECONOMIC RECESSION
WILL BE PLAIN AS DAY BEFORE THE YEAREND. $$$

◄$$$ ANNOUNCED LARGE COPORATION JOB CUTS ROSE SHARPLY
IN AUGUST. THE LEADERS WERE GOVERNMENT, FINANCE, AND RETAIL.
THESE SECTORS SERVE AS THE TRUEST SYMBOLS OF A DEEPLY DISTORTED
USECONOMY WITH BLOATED BUREAUCRACIES, OVERSIZED FINANCIAL
SECTOR, AND CONSUMPTION THAT EATS CAPITAL. $$$

Employers at large US corporations
announced more job cuts in August compared to a year ago,
a signal of no progress in the labor market in over two years. Planned
large site firings climbed 47% from August 2010 to 51,114,
according to Challenger, Gray & Christmas. The announcements
were led by reductions at government agencies and the financial
industry. Job cuts in federal, state, and local governments
are expected to ramp up considerably. Budgets are being cut
all over. Expect the USGovt to reverse course and order more
stimulus spending, but not states and locals. Government
agencies led the August firings with 18,426 job cuts in announcements,
followed by 8094 in finance and 5901 in the retail industry.
Bank of America, the biggest US bank, will eliminate 3500
jobs in the third quarter. See the Bloomberg article (CLICK HERE).